The 2022 Everything Bubble Is About To Pop

What's up Grandma? It's guys here, so we did it! If you stayed invested in the markets throughout the last year and not panic sold, you would have been up another 28% without doing a single thing. Or basically, you'd just be break even after inflation. Just kidding, too soon!

Anyway, the entire economy—from used cars, real estate, stocks, cryptocurrency, and Pokémon cards—have continued to see record high prices. Inflation continues to increase, and Chipotle keeps raising the cost of their menu. But as a result, some now say that we're soon about to enter a 100-year market bubble while experts warn that 2022 is going to look nothing like the year before it.

So I think it's worth diving into these forecasts to talk about exactly what's in store throughout the next year, where I'm investing my money, and I'll give you some of the reasons both for and against the market having another incredible year or a disastrous one.

But before we talk about that and why the IRS now wants you to declare a legal activity and stolen property on your tax return, it would mean a lot to me if you declared that like button for the YouTube algorithm by giving it a gentle tap. By doing so, you'll be paying your fair share to the algorithm for recommending you content like this that makes you even more money.

So thank you guys so much! Now with that said, let's begin. To put things into perspective, here's how much more expensive everything has gotten over the last year because once you see the numbers, it might be a lot more than you would expect.

Number one: Despite some analysts initially believing that 2021 was going to be a rough year, the stock market increased another 28% fueled by government spending, a Federal Reserve stimulus package, and stronger corporate earnings as the economy recovered. In other words, let me sum things up for you—there's a lot of pent-up demand causing people to rush into the markets, combined with government spending during a time when the job market was fighting for employees that didn't already quit during the Great Resignation.

So as a result, stonks go up! Real estate also saw a significant boost as well, rising 18.4% year over year—which, by the way, was the highest increase on record in the last 45 years—all fueled by record low interest rates, $40 billion a month of mortgage-backed securities buying, a limited supply of inventory, and Korean supply chain bottlenecks making it difficult to build more homes.

Others have chosen to buy into cryptocurrency as an alternative hedge against inflation, government spending, and regulation. So as a result, they performed even better thanks to continued adoption, a surge in demand, and mainstream coverage. Bitcoin saw a 60% increase in price from a year ago, and Ethereum is up 400%, despite them both being down 20% to 30% from the recent high just two months ago.

And then, of course, we have everything else: Food prices are up 6.1%. Used car prices are up 31%. Rents are up 10%. Natural gas is up 37%. And avocados are up 75%! Making me realize that one of the best investments of 2021 was simply planting an avocado tree.

Now seriously speaking of that, did you know that buying LEGO sets were found to be a better investment than stocks, wine, gold, and fine art? Yes, seriously! Collectible sets have risen at 11% annually since 1987. So hey, the more you know!

But either way, now that you understand exactly how much things have gone up throughout the last year, here's what's expected to happen throughout the next year's stimulus winds down, interest rates increase, and YouTubers can start to use 2022 in the title.

First, we got to talk about the stock market. It's important that we cover both the good, the bad, and the ugly, so that way you get a full understanding of what's in store without all the wild conspiracies that have absolutely no relevancy whatsoever. To do this, we'll start off with the pros, and that's what brings us to JP Morgan.

Now, I'll admit throughout the last few years, they've been consistently right. Like in 2020, they predicted another one trillion dollars flowing into the markets in 2021, causing the S&P to rise to 4,600—and they were almost exactly correct.

They even predicted the market would surge to a new record high by the end of 2020, just months after the pandemic, and they were also right! For that reason, I think it's very important that we take these forecasts seriously. They predict that:

1. Easing supply chains are going to cause the S&P to rise to 5,000 by the first half of 2022. As a result, the S&P will gain 8%, while emerging markets will add a whopping 18%.
2. The risks of COVID will be significantly reduced, and the virus will continue to have a diminishing impact on economies and markets.
3. Inflation could come down to a more reasonable level. They expect the global economy will work to solve the problems that emerged in 2021. Supply chain bottlenecks will alleviate, and globalization will keep the price of goods in check as it has for the past two decades.

All in all, they expect the S&P to grow to 5,100 by the end of the year as markets continue to grow. But of course, not everyone agrees. Some argue that peak earnings in a full recovery are already priced in, so whatever happens, you're paying for it today.

For example, analysts are already forecasting a more than 15% increase in year-over-year earnings in the first quarter, a nearly 45% jump in the second quarter, and a 22% rise for all of the year. So the expectation is already there!

Two, there's still uncertainty over the size of the next stimulus package, and there's no guarantee one will even pass. This was a huge incentive for investors to go and buy solar, green energy, and electric vehicle companies throughout the last year. Without a big spend on infrastructure, people begin to worry that prices might continue to fall.

And third, there's always uncertainty over a new strain of a virus and the possibility of something we have not yet anticipated. This is what's known as a Black Swan event because we can't price in what we don't know yet. And as 2020 has shown us, anything can happen when we least expect it.

As a result, some now say that we could expect the market to trade sideways for as long as a decade. Now, of course, in my opinion, as a guy on YouTube who has absolutely no idea what I'm talking about, I am fully prepared for the market to trade sideways for the next few years.

I'm setting my expectations really low so that if I earn more than a few percent, I'm happy. I'm absolutely not expecting the market to rise at a 20% return indefinitely, because come on, let's be real! If that somehow continues for the next 15 years, the S&P would be trading at 76,000!

Now second, let's talk real estate because there are quite a few variables that could affect pricing throughout the next year. And just like stocks, there's a varying opinion on what might actually happen.

So let's start with the good first. It seems almost unanimous that everybody agrees housing prices are going to continue to go up, albeit at a slower rate. CoreLogic, for example, expects housing prices to rise another 6% throughout the next 12 months, and Realtor.com predicts even lower than that at just 2.9%. But we'll cover those reasons shortly.

Two, Zillow expects that supply chain bottlenecks and underbuilding are going to keep inventory low for the foreseeable future. They say the biggest factors will be from years of underbuilding, elevated demand due to remote work, and low mortgage rates, which will continue the housing shortage even longer.

Three, mortgage rates are expected to rise but still remain historically low. After all, the FED completely laid their plan to begin tapering stimulus as soon as January and eventually ends their bond and mortgage buying programs by the end of the first quarter, leaving room to begin raising rates.

But even still, in the big picture, rates are at the lowest levels they've ever been at in history. So even a slight increase in rates is still going to leave us at well below historic averages.

However, even though real estate seems pretty robust, number one: Not every market is expected to go up. For example, CoreLogic revealed five markets that have a 50% to 75% chance of going down, including locations in Massachusetts, California, and Michigan.

Two, rents are expected to continue rising, which is good for landlords but bad for, well, everybody else. The Realtor Chief Economist was quoted as saying, "Although affordability challenges will come from rising prices and mortgage rates, rising rents—which are projected to increase 7%—will be a strong motivator for many hopeful first-time buyers."

Now this is on top of an already 10% increase throughout the last year, meaning the rental market is probably going to be one of the hottest topics of discussion throughout 2022. Just wait!

And three, even though interest rates are only expected to moderately rise, we have no idea how big of an impact this will actually have. For example, when the FED began raising interest rates at the end of 2018, the real estate market softened and even dropped in certain locations.

So obviously today, we have so many different factors in place than just interest rates, but there is a possibility that interest rates have a bigger impact than what we expect, and that's something to keep in mind.

Now, as for what I think, as someone who's been full-time in real estate since 2008, I tend to agree with the experts, and I think real estate is probably going to see a 4% to 6% increase throughout the next year. Do I think the biggest variable here is going to be rising rents as landlords pass on the increased cost down to the tenant? So if you're renting right now, I would prepare ahead of time and do your best to keep the increases as little as possible for your own sake.

Third, cryptocurrency. I mean, this is no surprise—it’s been another banner year for the entire market with both Dogecoin and Ethereum becoming some of the most searched terms throughout 2021. But 2022 could be the year that cryptocurrency starts getting a lot more mainstream acceptance and regulation, with the possibility of the highly anticipated Bitcoin ETF finally hitting the market.

So here's what you got to know: First, cryptocurrency only seems to be getting more popular. Like it was recently reported that now 53% of millennial millionaires say at least 50% of their wealth is in crypto, and at least a third of them said that at least three-quarters of their wealth is invested in Bitcoin or Ethereum. Compare that to only 4% of baby boomers who hold any cryptocurrency whatsoever. For that reason, it's very likely the entire market will continue to grow as investors accept it as an alternative asset.

The second is El Salvador embraced Bitcoin as a currency; that could lead to a domino effect as other countries continue to follow. That leads people to believe that more of Latin America could begin using Bitcoin, boosting its dominance over time and solidifying it as a way to protect against a declining currency.

The third, even though more regulation could be bad, it could also be good, as that would set the framework for more people to invest. However, there are also downsides, most notably that:

1. A spot ETF is probably not going to happen in 2022 or even anytime remotely soon. For example, recently the SEC rejected the latest physical Bitcoin ETF, saying it still lacked confidence that the Bitcoin market was free from manipulation and fraud to approve the product. So until those issues are properly addressed, a Bitcoin ETF is probably not going to happen.

2. Others expect a sudden crash to happen in 2022, similar to what happened in 2018 when everything dropped 80% to 95% in value. Of course, this is said on what seems to be a monthly basis, and people have been predicting a crash for years, but that doesn't mean a substantial drop can't happen.

And it might be the result of:

3. Excessive leverage. Since there's very little regulation throughout cryptocurrencies, some traders are able to leverage their money 20 to 100 times, allowing them to trade a whole bunch of money with almost none of their own money at risk. In fact, it was even reported that Bitcoin leverage was near its all-time high, warning investors that if a sudden drop occurred, it would cause a mass liquidation event, causing the price to crash very fast.

So as far as what I'm doing about this, I've made the decision to allocate 8% of my entire portfolio into a 50/50 split between Bitcoin and Ethereum, and I buy on a consistent basis regardless of where it's trading. I'm either treating this like an investment that's going to be worth a fortune in the future, or it's going to be worth absolutely nothing.

So I've invested an amount where I'm okay with it going to zero if that were to happen.

And lastly, we have inflation, of course. Throughout the last few weeks, we've all seen the stories about how inflation has risen 6.8% year over year, the highest level since 1982. That worries people that if things continue at the same trajectory, that would be devastating.

So here's what's being done throughout the next year to make sure things don't get too out of control:

1. First, the Federal Reserve is reducing their stimulus known as the FED taper. Under this change, the FED plans to reduce their stimulus by $30 billion a month until by the end of March, they're completely done and don't have to buy anything else. The result should be less upward pressure on prices, helping ease inflation in the process.

2. The second, we have upcoming interest rate hikes. A new projection shows that every single Fed official expects at least one rate hike in 2022, which was a drastic change from just a few months ago. The expectation is that rates will be 0.9% at the end of 2022, 1.6% at the end of '23, and 2.1% at the end of '24.

3. And third, we got inflation. The FED expects inflation to begin slowing down throughout the year and end the year off with a 2.6% inflation rate, down from the 6.8% that we see today. After that, they hope to see 2.3% inflation in 2023 and finally 2.1% inflation in 2024.

Now, whether or not that actually happens is anyone's guess, but so far, they've dramatically underestimated what we've seen, so just keep that in mind. But if things are beginning to improve, we should see inflation begin to slow down.

But again, what do I know? Don't quote me at all—don't even listen to me! How about that!

As far as my own thoughts in 2022, I would say that we're likely to see a lot less volatility, but we're also probably not going to see the types of returns as we have throughout 2021 and 2020.

I know people have been saying this for a while now, but seriously, 20% to 30% returns annually are not sustainable, and at some point, things are going to begin to normalize. Of course, maybe I'm completely wrong, and we'll see another 30% year on the back of another stimulus and some massive tax cuts. But if everything continues exactly as it is now, things will probably rise, albeit at a much slower rate.

That's why my personal plan is to keep investing as usual, dollar-cost average into the markets, try to buy another real estate deal if I could find one, and of course, how could I forget to smash the like button for the YouTube algorithm?

Oh, and as far as why the IRS wants you to report stolen property on your tax return, the reason is simple: If you're found guilty of something, it makes it a lot easier for the IRS to tack on additional penalties that otherwise would not have existed. It's all structured as an extra punishment, not as a way for people to incriminate themselves on their tax return.

So for anyone curious, that's why—but just don't steal! Easy problem solved.

So with that said, you guys, thank you so much for watching! Also, make sure to subscribe. Feel free to add me on Instagram or on my second channel, The Graham Stephan Show. I post there every single day I'm not posting here.

So if you want to see a brand new video from me every single day, make sure to add yourself to that. Thank you so much for watching, and until next time!