Art Cashin sees the inflation peak soon and more surprises for the market in 2022

You have to hand it in at UBS’s Art Cashin. He loves to play against the audience.

“Cashin the Contrarian” was very evident in my annual look-ahead interview with the NYSE floor legend. We’ve met in our usual place for 15 years: Bobby Vans Steakhouse across from the Big Board in Lower Manhattan.

As he is used to, Art defied consensus on many topics for 2022, including the idea that the Federal Reserve will hike rates increasingly aggressively over the next year and how long inflation will last.

“The headline in a year’s time will be that rates are not going to rise as much as people think,” Art tells me, implying that Fed Chairman Jerome Powell and others are sensitive to, and the impact on, higher rates Economy have not given up.

“I would suggest that viewers don’t pay too much attention to the meetings and what has been said at them. Keep in mind that Powell will have to be reassigned in mid to late January. So if they taper a little too quickly.” if the market takes it somehow badly, it has to allow a back-off. “

“And if the stock market suddenly fell sharply, I think the Fed would be seen pulling back. And I think the fact is, this economy is much more dependent on the stock market. People’s wealth has increased. Back to that consumer, their household wealth has increased – some of that is measured by what the stock market is doing. “

Surprise! Art says that once the Fed gives up the floor, inflation will indeed prove to be temporary. He says many companies have double ordered their supplies and that after the holidays, supplies will pile up on the dock. He believes inflation will ease in the first quarter and points to some key data in China.

“I think product inflation will fall sharply [in early 2022]. I would suggest that there are two dates that viewers should watch out for. One is the Lunar New Year, okay, and its celebration in Asia. Second, the Winter Olympics, which will be held in China. I think China plays a key role here in the demand cycle, in the supply cycle. And once President Xi gets through these two, he’ll worry about a food shortage, he’ll worry about an energy shortage. He’s worried about all of these other things. They should be crowned for the Lunar New Year and the beginning of the Winter Olympics. And then I think that you are going to see prices start trending downward and that is going to be an important headline in my opinion. People will say, wait a minute, wasn’t the Fed suddenly temporary in December?

The art is optimistic about the ultimate effects of Covid and its many variants. By this time next year, he believes vaccines and antiviral pills will have made significant strides against the disease.

“I think the headline will be that it seems pretty straightforward. We’ll have to look out for modifications and variations. There is still an opinion that this was less of an accident and more of an artificial design gone wrong is going to cause problems because it will make the nations much more defensive and restrict things like business travel and whenever we look at the airlines today while we do that Year move into this and domestic trips. Yeah, people go home to see the family on Thanksgiving and so on. International travel has not yet returned. So the hallmark is that if it doesn’t get much more manageable, it will affect the global economy. I think the great hope here is in fewer vaccinations and more in the treatments, the pills. If these things seem to work this way, then I think we’re going to make Covid manageable – similar to the vaccines that prevented smallpox, but flu and a host of other things – they’re more managed through therapeutic treatments.

Cashin is bullish on stocks for at least the first half of the year for one reason: consumer health.

While many referred to 2021 as part of a huge spending boom, Art believes the real consumption boom will continue until 2022.

“If Covid is moderated to a point where people can go out, then all of that money is ready to be spent. And that’s why we had a pretty good economy, because people were saving more than ever before. ”Had in America before in the household. And that’s available to spend. So if Covid moderates, there could be a sudden economic boom when people go out and start spending – much like the baby boom after WWII. We’ll go out and spend money. People are talking about the roaring 20s – maybe we will actually get it back. “

Another reason Art is optimistic: Record buybacks have returned.

“Now that we’re almost back to normal, believe it or not, company buybacks are back to the high levels they had before the breakout, which left me not entirely sure, but it was one big boost for the stock. And if it goes on like this, you and I will be discussing this and looking at the earnings and other things. But company buybacks over the past four years have been a very, very important factor in the rallies and bull markets we’ve seen. ”

Art believes megacap tech stocks (Apple, Microsoft, Nvidia, etc.) will continue to be a major factor in the markets in the first half of the year, but a re-rating is imminent.

“You were a factor – I think that could change and we need to look for a bit of a wider dispersion in the economy. I don’t really think 20 or 30 companies are going to tell us what is happening in America or even in the world as we have seen it in the past few years. “

Another problem for big-cap technologies is further regulatory restrictions.

“Take a look at Facebook. Facebook got so powerful it had to change its name because it seemed an abomination. It ruled our children’s lives, it ruled what they did, and suddenly, not unlike Jack Ma in China, there were suddenly a people or two, a company or two that looked too big. I think you will see that kind of social pressure return and the influence of these big corporations is being challenged by the government and otherwise. I prefer them to be challenged by new inventors, but it doesn’t happen. “

It was one of the big stories of 2021: Analysts underestimated the strength of the economy and dramatically underestimated earnings growth, by 10% or more. Cashin expects this to happen again at least in the first six months of 2022.

“I think in the short term analysts are once again underestimating, and as I told you earlier, it would be forgotten that the budget piles up, the group piles up supply below this market for the next six months in a way that will surprise a lot of people. “

How much higher could the revenues be in 2022? Currently, analysts expect earnings on the S&P 500 to rise 10% over the next year. Cashin Believes That It “Certainly 15 And It Could Be 20” [percent higher]. “

Art believes China’s potential food and energy problems next year could lead its leader Xi Jinping to take certain geopolitical risks.

“Because I’m the autocratic leader of a nation and I’m starting to see the political polls. Not that I’m running for election, but my people are upset here. What are you doing? You have to do something to get their attention away from it. If I can’t get you the food and energy you need, I have to distract you. And that means geopolitical surprise. The reason I can’t give you a solid answer about what the relationship is going to be, tell me how bad the food shortage will be. You tell me how bad the power shortage will be and I tell you how? How far are we, when do we worry about Taiwan or Ukraine? We are at a time when autocratic rulers want to divert the attention of their people. “

As is so often the case, Art ended our discussion with a parable of when to buy and when to sell. One of his earliest mentors, Professor Jack, who traded over-the-counter silver stocks in the early 1960s, was involved. A very young type of cashin, Professor Jack used to hang out in the many bars around the NYSE.

This particular story revolved around the very dark days of the Cuban Missile Crisis in late 1962, when for a moment it looked like a nuclear war was about to break out between Russia and the US stock puts, a bet that the market would fall.

He ran to the bar where Professor Jack was drinking and told him what he had done.

“And he said to me,” Kid, sit down and buy me a drink. “That was tuition. I paid the tuition by buying Jack Scotch Old Fashioneds and the class was as long as I could afford or as long as Jack could speak after drinking. “

“I offered him a drink. And he said, ‘Now sit down and listen to me.’ And I said, ‘Yeah?’ And he said, ‘When you hear the rockets fly, you buy them, you don’t sell them.’

“And I said, ‘You’re buying them? Why should you buy them when the missiles are flying?’

He said, “You buy them because if you’re wrong the deal will never be clear. We’ll all be dead!”

“I loved him, I said you never learn that at Wharton School or Stern School. This man in this bar just gave me a glimpse of Wall Street that will stay forever seemed at first sight and think of the ultimate consequence and that is the action you take. “

The wish of art for 2022: “Let’s stop the rockets from flying.”