Unpredictable predictions
Boxing Day (December 26th) is a special day in our household, as our eldest son was due to be born on that day. This week he asked if we could play the game 'If you laugh its not true'. I'm still not entirely clear on the rules, but the basic premise seems to be to make outrageous predictions for the coming year, and if you can't keep a straight face then everyone knows it is false.
The game proceeded in typical 8 year old style, leading my wife to predict that in 2022 he would stop using the word poop in every sentence. Of course this was still in 2021, so his next outrageous prediction was that in 2022 people would be pooping on the street in New York.
He was laughing of course, but it seems plausible enough to me.
On a somewhat related topic, for those that don't know, Boxing Day was originally a day for giving gifts to the poor.
Later it became the day when shoppers would head out for bargains. However, it appears to have lost it's meaning for the second time in recent years, with the UK adopting Black Friday in it's place.
Therefore I propose that we start a new tradition of making Boxing Day a day for making interesting predictions for the year ahead.
Please share you're own interesting predictions in the comments. Ideally they should be likely to happen, but unlikely to be listed in any other list of year ahead predictions.
Sports
Sports are a fertile ground for predictions, seeing as they give easily measurable results. It is also an area that I know something about.
MLS will overtake MLB as the 3rd most popular sports league in the US (not counting e-sports). Of course if MLB doesn't play all year it will fall a lot further. However, the growth in popularity of football may be the bigger story. An interesting hypothesis is that the publicity generated by the US Women's national team is driving the growth of MLS.
China will win more gold medals than the US at the Winter Olympics. They never have in any previous winter games, but being the host nation seems to do wonders for medal totals in general, and gold medals in particular.
A Patriots / Buccaneers Superbowl will be the highest rated TV broadcast ever. Last Sunday, I commented to my wife that the Buccaneers were beating the Bills. Her response, predictably enough, was 'Why do you think I care about this?' I went on to explain that this result materially increased the odds of the Superbowl being Brady vs Belichick II. Even she is interested in that.
A Chinese player will win the World Snooker championship. We Brits like to make fun of Americans for calling the baseball playoffs the World Series. Well in the 94 year history of the World Snooker Championship, there have been 2 winners from Australia, 1 from Canada and the rest were all from Britain and Ireland. Hardly a paragon of global representation. This year we saw 2 young Chinese players win the other two major tournaments - the UK Championship and the Masters. It's a game about confidence and these results should open the floodgates. Oh and if you're in New Jersey and want a game, give me a shout.
Patna Pirates will have the largest attendance in the Pro Kabaddi League. After a year off due to the point of the game explicitly being to touch your opponents, the league starts up again this week. With the hiatus, there is no doubt that the stadiums will be filled to capacity. The pirates have by far the largest stadium, hence the prediction.
Greg Anderson will become the first driver to win 100 NHRA pro-stock events. Not going much out on a limb with this one either, since Greg is the reigning champion and currently sits on 99 wins. My main point here is that attending a top-fuel drag race should be on your bucket list. This article does its best to describe the indescribable. Just don't sit downwind of the burnouts because you will get covered in rubber.
Technology
For someone who has spent most of his career doing programming, I'm decidedly disinterested in technology. I'd rather be hiking up a mountain. Here's my view from up there.
There will be reports of EV-charger rage violence. EV adoption appears to be accelerating, growing from about 4% of sales in 2020 to nearly 10% in 2021. EV-charger rage is already a thing but it doesn't get much coverage. This may be because the media only want to highlight shootings, and until now the intersection of EV owners and gun owners has been tiny. I'm guessing that once Ford ships a bunch of it's new electric F150s this intersection will grow.
We will see more hi-definition footage of controversial police encounters. There was controversy in the Rittenhouse case about a video that was presented to the defense in a lower resolution than the original. As I understand it, where 4G permitted streaming of video, 5G will permit streaming of high definition video. Put this capability everywhere and people will use it.
It will finally be possible to buy an RTX 3090 for the listed price. My understanding (from the Nvidia website) is that e-sports is often a game of milliseconds, and you need the most powerful graphics card to be competitive. At present I gather that is the RTX 3090, but come January it might be supplanted by the 3090 Ti. This might shift enough of the demand away from the current version that you don't need to be a professional scalper to buy them when they come in stock.
The Metaverse will be the largest growth sector in tech. The first time I heard of the Metaverse was when Facebook changed its name. As ever with Facebook, I ignored it. The second time I heard about it was when my 8 year old was watching some Youtube content on Roblox. He doesn't have an email account so if he sees something then it must be quite heavily promoted by the algorithm. If I've seen it from the mountaintop in two different places, it must be really important.
Politics
I'd rather hike up a mountain while repeatedly punching myself in the face than be forced to watch a political debate. Here's my view from 10,000 feet, with the addition of some pain at just how awful it is.
Labour force participation will increase significantly in the US (thereby easing many supply chain problems). Starting in January, landlords will be able to evict people for non-payment of rent. The rule in my state (which I assume applies elsewhere as well) is that you can't be evicted for non-payment of rent between March 2020 and Dec 2021. Since people already know this, I'm guessing that come January they'll go out and get a job to start paying rent again. I would add that the courts ruling against vaccine mandates will also help, but that now depends on the Supreme Court, so I'm not optimistic.
The Republicans will win more than 40% of Latino votes in the mid-terms. Originally I put 50% but I don't think that is likely. As I see it, political strategists use identity politics as it provides the most accurate model to predict election outcomes. That model is now somewhat broken, at least in the case of Latino voters.
Fewer vaccine passports will be required around the world. People who are vaccinated and scared of the pandemic are generally in favour of vaccine requirements. In many countries they are a majority, and thereby drive government policy. The hypothesis is that Omicron will alleviate some of the fear, and that the constant redefinition of vaccinated means that they will not be a majority for very long.
The supreme court will not overturn Roe vs Wade. I was shocked to learn just what a high proportion of pregnancies are terminated these days. No wonder birth rates are so low. Having said that, making abortion freely and easily available to women who would otherwise become single parents is perhaps the most effective way to address wealth inequality in the long term. I can't decide what is better, so I don't think the court will dare to touch any case that would make them decide.
Market correlations
Okay let's get back to things I'm more interested in. You won't see many correlation predictions because they are not very tradable in general. That's why you are here isn't it? - for stuff you don't see elsewhere.
All correlations are in return space of course.
1. TSLA/SPY and Oil will be negatively correlated.
Until 2021, both TSLA and Oil would typically rise when demand for 'stuff' increased. We've now reached a point when evidence of increased demand for electric cars might cause the market to infer lower demand for oil. We're also at a point when higher oil prices might point to lower demand for 'stuff'.
2. QQQ/SPY will be negatively correlated to 10y rates.
Similar to the above, rather than higher rates being evidence of demand for stuff, it is now evidence that cheap financing for companies with high growth but low revenue is harder to come by.
3. ESG will be positively correlated to SPY.
This isn't so much a prediction as a commentary.
I wanted to say something about ESG, but the first few ESG ETFs that I came across are all now essentially 100% correlated to SPY. This means that basically every company has completed the box-ticking exercise that is required to be included in these indices.
What now?
EM is no better, with ESGE being almost 100% correlated to EEM. At some point the ESG standards have to be toughened if it is to remain relevant.
4. EUR/USD and USD/TRY will be positively correlated.
In case you hadn't noticed, the Turkish Lira is contemplating a hyper-inflationary spiral to zero.
The prediction here (obfuscated by FX quoting conventions) is that the values of the Lira and the Euro, both measured in Dollars, will be negatively correlated. This generally doesn't happen because fluctuations in the Dollar impact both.
The premise is that the Turkey has outsourced inflation fighting to the Fed. Fed hikes that strengthen the Dollar may therefore bring relief to the Lira.
You can actually trade this, because FX is awesome like that, but I don't think you'll like the offer on the correlation swap.
Miscellaneous
Some other random observations.
Squid games birthday decorations will be out of stock. Of course I have no interest in a show seemingly based around a bunch of children's birthday party games. However all the children are playing it. Moreover, birthday parties appear to be back, and will spread like wildfire as soon as it is established that they are okay again. I checked, and sure enough, these decorations exist, but are currently unavailable on a popular internet shopping site. The return of birthday parties could also squeeze helium supplies again.
The price of LED lightbulbs will collapse. How many unicorns does it take to change an LED lightbulb? None of course, because they never need changing. Due to their dominance in performance over traditional bulbs, LEDs have always been expensive. However I don't think their manufacturing cost is materially different. They have become relatively more affordable due to competition, but I suspect that most people don't yet realize this. With the people who actively buy LEDs not ever needing to replace them, we now might have a big over-supply. As evidence of this, I've been buying 6 packs of bulbs from a popular big-box retailer for $2.99 (reduced from $14.99).
Flying cars will crash into Santa's sleigh. We're back to the 8 year old's predictions. He also predicted that we would have time machines by 2077, and certainly by 2100, which rather ruined his forecasting credibility.
Lego will bring out a set with more than 10,000 pieces. They are getting closer - 9036 with the Colosseum in 2020, 9090 with Titanic in 2021. This year is their 90th Anniversary so presumably something special is planned. I would never buy such sets. As far as I'm concerned, Lego is supposed to be built, then smashed up and built into something else. Indeed that was pretty much the point of the first Lego Movie wasn't it? What do you think the 10,000 piece set will be? Re the Titanic, if someone can manufacture a Titanic shaped humidifier, where the mist comes out of the first three funnels, I'd be happy to buy it.
The businesses cycle will complete. Apparently, airlines now derive all their value from credit cards tied to their loyalty programs. Essentially, much like car companies, airlines are now banks, but without the scrutiny perhaps. A friend who works at GS tells me that they now consider themselves to be a technology company, not a bank. What about technology companies? Well they seem to be getting into the business of making cars. It's brilliant. They all escape regulatory scrutiny by conducting business in a sector that their regulators don't regulate. You might call it the businesses cycle.
Housekeeping
I'm not inclined to add any new positions this week, as there is not a lot of option activity for the 23rd. I will however wrap up the loose ends from last week, and give an update on my current positions.
Last week XLE was laggard as expected, though I picked XLK against it, which on an open to close basis left the model portfolio flat to SPY.
It felt like an up-and-down noise week, with the outperformance of healthcare perhaps a reflection of an overreaction to Omicron. Aside from that it also looks like there was some rebalancing, with the 3 sectors with the highest year-to-date return being the 3 laggards. This doesn't seem too scary, and we don't see any change in retail sentiment, although the failure to pass more stimulus might have put the market under pressure pre-open.
The pick of VOD performed quite well, finishing the week up about 1%. I'll keep that for now, as the pattern of RSI divergence has longer term potential. Likewise, ZNGA still looks constructive and I have that as a longer term trade.
NNDM had an up-and-down week. It remains below my average entry, but I see no reason to think it won't get back above $5 at some point.
The last open position I have is in TLRY. It is a small position that didn't work out as a trade, but I kept it as it is a sector I like in the long term. TLRY has lagged the sector quite badly this last week. I'll probably swap it out for MJ once that gap narrows, and may do so in any case if it doesn't correct fairly soon.
Epilogue
I was introduced to Kabaddi at a young age, if I remember correctly, on Channel 4. I also used to watch the AFL there. For some reason unknown to me, my brother and I were fans of Essendon. At the time, I remember being terribly confused as to why Essendon and Melbourne would take the field in essentially identical jerseys. I see they have three different kits to avoid clashes now. Can anyone from Australia confirm that I'm remembering this correctly, and when they introduced the alternate jerseys if so?
In the technology section I originally included a prediction that mRNA flu vaccines would be rolled out. This was based in part on Fauci discussing the topic at the Milken Institute a couple of years ago, and in part on forthcoming research on their benefits highlighted in a Dave Asprey podcast. However, Fauci's recent publication in the NEJM is more focused on universal vaccines, which these targeted mRNA vaccines don't seem to be. As such I changed my mind.
On the topic of housekeeping, I once pulled a prank on the aforementioned GS employee when we were travelling together in Asia. We were going out for dinner so I knocked on his room door and in my best maid's voice said 'House kee-ping'. He was still dressing so had to hurriedly pull his trousers on to avoid a potentially awkward situation.