The author is the editor-in-chief of MoneyWeek

Nothing can represent the Christmas of currency reporters better than the first 2022 Outlook report issued by a financial institution. Therefore, I can tell you with complete certainty that Christmas is coming soon-according to most people who make a living in the stock market, you don’t need to spend it worrying about the stock market. They say that there is more good news than bad news.

They said that the past few weeks have been very unstable, but the economy is still growing well. Household savings are high and unemployment is low. Both of these things bode well for consumption in 2022, as will the government’s shift to support fiscal policy (they are now big money).

Supply chain bottlenecks may also be alleviated in 2022, which will help promote inventory rebuilding and alleviation of GDP inflation -In any case, which markets are not worried. As a note from Invesco said, we are “living in one of the most noteworthy periods of change in history.” All digitization has created extraordinary new industries and medical advancements, and has produced amazing new methods for treating human diseases.

What is the coronavirus?The use of high-efficiency may be expanded next year Antiviral substance The pill will push it to the list of things everyone needs to worry about. Add all of these together, and next year the global growth rate may exceed 4%-well above the normal level of the past decade. We have also been told that this is a favorable background for the stock price.

Barclays analysts pointed out that this year is characterized by escalating earnings-the company’s performance has been better than we expected. They said that this situation is likely to continue to happen, partly because of good growth, but also because the new crown virus “destroyed competition”-the pandemic “caused disproportionate harm to SMEs” means it may have been larger ( The share of revenue of listed) companies is shifted from smaller (unlisted) companies. So that’s it: the market is tough enough to ignore most things. You can continue your Christmas shopping. There is nothing to worry about here.

A lot of it makes perfect sense. But it still has some problems. It ignores policy risks. It ignores the price. It ignores the capital cycle.

Take the policy risk first. Inflation may slow down next year. But the fact is that no one is completely sure how inflation works. In the past 20 years, it is entirely possible that the central bank has played a role in keeping inflation low. But it is equally possible—and even more likely—that low inflation is more due to the wave of globalization and cheap labor after China’s accession to the World Trade Organization in 2001 and the expansion of the European Union.

If this is true, then the idea that the central bank can solve this problem by raising interest rates by a strange 0.25 percentage point is ridiculous. Maybe they must either accept inflation or actually raise interest rates appropriately above the inflation rate to control things. This is not in anyone’s prediction.

To the price. The market is fragile when it is expensive, as it is now-mainly because not all market participants truly believe what they have written in the prospect.

We all know that future returns are a function of today’s price. It’s okay if we can deceive ourselves into thinking that earnings will soon rise so much that the valuation will decrease and we don’t have to lose money. But when confidence is hit even the slightest, it’s not good.

This is what we saw very clearly on Friday Market panic More than one report New variant SARS-Cov-2 virus. If the global market is cheap and resilient, then we don’t know whether the new variants are bad variants (more contagious and lethal) or good variants (more contagious but milder), the fact that it will not have an impact on the market. They didn’t let the FTSE 100 index fall by 3% before lunch.

Finally, consider the capital cycle. There is a must-have book for every stage of the market madness.It should be now Capital return: investing through the capital cycle, A collection of essays edited by Edward Chancellor. The idea here is simple: you should look at how much capital is pouring into an industry instead of just focusing on price. The more capital, the more likely the industry will experience oversupply and price collapse.

It is now easy to see those sectors where capital seems to be both free and unlimited (renewable energy is the obvious example), and it is easy to see sectors that have not been available for a while (for example, old energy and mining). This combination should make investing feel harder (high risk) and easier (with obvious opportunities).

So what exactly should the outlook for 2022 say? The market is fragile and will be very unstable. There may be good times in the future, but many parties have discounted prices for 20 years. Perhaps investors should bias their holdings towards cheaper industries, especially those industries that are scarce of capital, and it turns out that we need these industries as we always do.