2021 has felt full of Grey Swans, from continuing COVID mutations to low rates in the face of high inflation. We therefore continue our tradition of picking Grey Swans for the upcoming year.
Grey Swans are those low-probability, high-impact events that few expect. They are close cousins to Black Swans: high-impact events that no one expects.
Last year, we had picked 10 Grey Swans for 2021. Amazingly, some materialised. Notably, the Democrats won the Senate, and inflation surged. A few almost happened. US yields avoided going negative, but they went much lower than everyone thought. And while we saw no global carbon tax, carbon policy has impacted energy markets. Others failed to appear – China refrained from war over Taiwan, Biden failed to unite America, and we met no aliens (or did we?!).
But the main purpose of Grey Swans is not to be right. Rather, we hope to broaden our perspective on what could happen. This year, we have selected 15 Grey Swans. We hope you enjoy them!
2022 Grey Swan #1: Pundits are Wrong! US Enters a Recession in 2022
For our first Grey Swan I write on how a Fed hiking cycle, negative fiscal impulse, this year’s run up in oil prices, Omicron and the China slowdown all leave significant downside risks for the US next year. Recession rather than inflation could become the theme of 2022.
2022 Grey Swan #2: With a Magic Wand: COVID All But Disappears
Virus mutation, natural immunity and vaccines are all reasons why the pandemic could end next year according to Sam van de Schootbrugge. COVID could also just disappear like other viruses have!
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2022 Grey Swan #3: Crypto Kills Facebook
In our third Grey Swan, I write about how crypto-based platforms that allow creators to retain ownership of their output could leave centralised platforms like Facebook in the dust. Just look at the performance of our Macro Hive Index of Crypto Platforms versus Facebook/Meta.
2022 Grey Swan #4: Elon Musk Sells All Tesla Stock to Save the World!
Our fourth Grey Swan follows a scenario where Elon Musk sells all his Tesla shares to solve world hunger. Thorsten Wegener writes a compelling analysis of how this could happen.
2022 Grey Swan #5: La Nina Strikes Hard – Noah’s Ark Time?
For our fifth Grey Swan, John Tierney tackles climate change. He gives his view on how investors should position in a scenario where La Niña moves from mild to extreme.
2022 Grey Swan #6: The Brazilian Real Collapses – USD/BRL to 10
Jon Turek cites three reasons – Fed hikes, rising fiscal risk premia ahead of the elections and a less hawkish BCB – as reasons why BRL could collapse next year. This year’s rate hikes certainly haven’t done anything to support the currency.
2022 Grey Swan #7: Supply Shortage Flips To Supply Abundance
Dominique Dwor-Frecaut turns to the issue of supply disruptions for our seventh Grey Swan. Slowing goods consumption and excess supply could mean an inventory glut and lower prices are in store for 2022.
2022 Grey Swan #8: Immigration and Fiscal Tensions Lead to Euro Break-Up
I discuss how the combination of COVID, economic divergence, shifting alliances and French elections all raise the risk of a Euro break up over the next year. Restrictions are already being reimposed due to COVID and this could eventually compromise the free movement of labour.
2022 Grey Swan #9: Democrats Flip History and Win the Mid-Terms!
A more unpopular GOP, a new national emergency and more voter friendly policies from the Democrats are all reasons why Congress could remain blue after the mid-terms according to Dominique Dwor-Frecaut. She sees the third reason as the most likely.
2022 Grey Swan #10: BOJ becomes the People’s ATM
In a radical attempt to reflate the Japanese economy and move away from yet more fiscal stimulus, Dominique envisages a scenario where the people’s QE is implemented. This would effectively comprise cash transfers to households funded by BoJ money creation and could prove very powerful.
2022 Grey Swan #11: Real Rates Armageddon: Pensions Are Destroyed
Rather than disinflation, disintermediation, or decarbonization, Karl Massey considers the possibility of default for our eleventh Grey Swan. Higher inflation than in the past and lower growth leaves those with significant unhedged real return exposures as the biggest losers.
2022 Grey Swan #12: Manchester United Wins Champions League
For our 12th Grey Swan, we turn to football. Henrik Gullberg considers team quality, experience and age to determine whether Man United could turn into credible Champions League challengers. Maybe a few tweaks is all that’s needed!
2022 Grey Swan #13: The Fed Buys Tech ETFs!
David Dredge explores what could happen when the Fed dials back its expansionary policies while inflation remains high. He sees the tech getting hit hard and as a result the introduction of QE Tech ETFs.
2022 Grey Swan #14: ECB to Hike in 2022
Our 14th Grey Swan for 2022 follows a scenario of ECB rate hikes despite below target inflation. Differentiating between removing negative rates and a conventional above-zero hiking cycle could be the way to do it.
2022 Grey Swan #15: The Jets Win the Super Bowl
In our final Grey Swan of the year Jon Turek explores the highly unlikely event that the New York Jets win the Super Bowl. From draft capital, free agency money and a turnaround in the performance of quarterback Zach Wilson, Jon lays out the needed steps for Jets success.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)