Dear friends

Happy new year to you and your loved ones, I hope you had a great start into a wonderful 2022! But before we jump into the new year, let’s review the developments in the past month.

Fed Chairman Jerome Powell struck a more hawkish tone this time at his semiannual hearing before Congress, proposing to drop the word “temporary” in the context of the current inflation environment. Continued high consumer spending, microchip shortages and supply chain pressures have pushed the Consumer Price Index (CPI) to its highest year-on-year increase since 1982, persistently above the Fed’s 2% inflation target.

Following Powell’s comments, markets now expect the Fed to soon accelerate tapering of its quantitative easing and raise interest rates.

Growth-oriented stocks took the main hit from the market decline, as higher interest rates challenged higher valuations. Following news of inflation and tapering in the U.S., the shift to lower risk spread to the crypto markets as well. It was a classic case of “sell now, ask questions later.” And since cryptocurrencies are becoming a more and more pervasive 24/7 asset, risk adjustments in both directions are increasingly taking place on weekends as market participants try to position themselves for the week ahead.

As if we didn’t have enough volatility already, the Covid variant Omicron suddenly emerged and became a global talking point. A heated debate quickly unfolded about its potential impact on the economy and public policy, which further increased volatility in the markets.

With persisting inflation further stimulus is no longer a viable option. Accordingly, the Federal Reserve announced later in December that it would increase the pace of its taper and end its bond-buying program by the end of March 2022. While the Fed left the key interest rate unchanged, it signaled up to three rate hikes in 2022. Meanwhile, the Bank of England surprised the markets by raising its key rate by 15 basis points already now. And the European Central Bank announced to reduce its money supply in the longer term but intends to maintain asset purchases until at least 2023. All in all, global central bank policy will be an important topic this year undoubtedly impacting most asset classes.

It will be interesting to see which medium- and long-term assets the market views as inflation hedges. Perhaps JP Morgan’s assessment may prove to be true that Ethereum, the second largest cryptocurrency, might be a better inflation hedge than gold.

While investors received a full dose of corona news, the Omicron variant continued to spread rapidly. A strict lockdown was again imposed in the Netherlands over the Christmas holiday, while more than 20,000 cases were reported daily in London and New York. Many flights were cancelled due to the virus, and New Year’s celebrations were curtailed worldwide.

Although Omicron continued to dominate the headlines with massive increases in reported infections, it fortunately appeared to be associated with less severe illnesses. Easing concerns led to a brief Santa Claus rally that sent the S&P 500 to another all-time high as fearless investors bought the recent dip.

Our strategies could not escape the market turbulences in December and unfortunately also suffered some losses with Universal ending -0.4%, Progressive -6.9% and CryptoMax -6.3%.

But all in all, we had an amazing year with Cryptomax still delivering 106.6% for those who went all-in, with better returns and less volatility than Bitcoin for the year!

The more cautious ones who split their portfolio 35%/35%/30% among Cryptomax, Progressive and Universal and rebalanced once when Cryptomax reached 50% of their portfolio, still had a 46% combined annual return with less than 30% volatility and a maximum drawdown of just over 13%.

As we enter the new year, the signs are on the wall that the investment environment is changing. We are entering a period of consolidation, where bond tapering and proposed rate hikes will likely decrease liquidity and risk appetite in the markets. Near-term developments will depend on the further impact of Omicron and the extent to which investors shift to lower risk assets.

No one knows exactly how everything will play out. But for me it’s clearly a time to stick to proven strategies that are diversified across all asset classes and have the potential to mitigate many risks.

So, here’s to the new year and new luck. The ball is rolling again, faites vos jeux !

Stay happy, healthy and wealthy!

Omar