It’s a given that no one knows what the future holds.

But that doesn’t mean we just shrug our shoulders and blindly stumble upon what comes next. We can consider the possibilities, map out the higher and lower possible outcomes and play war games in different situations. We can go beyond the current situation considering the recent history that has brought us here.

Let’s consider two possibilities: One where many things are right, and another where most are not (intentionally impossible to avoid extremes). Our expectation is that reality will end somewhere between the two extremes. This is a higher probability but any point along the spectrum between the extremes is an effective probable result.

There are endless challenges facing America and the world, but let’s consider the 5 biggest issues: inflation, war, recession, cowardice and market volatility. There are dozens more, any one of which- Monkeypox! – Something terrible can spiral. But for our purposes, let’s stay with those 5.

Consider what the best- and worst-case scenario might be:

Scenario 1: Everything is going well: The epidemic that shut down the world economy in 2020 has finally gone out of steam. In the United States, when more than 70% of the population is vaccinated and raised, we achieve animal immunity. Vaccines for children under 5 years of age are approved, and most parents vaccinate their children at the request of a pediatrician and school (it appears that children were a major vector for infection). With very few possible new hosts, the epidemic burns itself out.

Life begins to be normal: Economically, the country returns to a more service-oriented and less product-oriented economy. Side effects include blocking many supply chain snaps. Semiconductors see a ramp-up in production, which increases the supply of new automobiles. Price increases have already reached the top, and across a range of products, they are downward. Home prices stabilize and begin to decline slightly, as more single-family homes are built and many family apartment buildings are completed.

The Fed acknowledges that the worst of inflation is already behind us, and so they change their tone to fight inflation and come down to zero and normalize monetary policy. After an increase of 50 bps in June, they go 25bps for the rest of the year. The Fed Fund ends 2022 at 2% and will be there for next year.

Russia begins to acknowledge the futility of their war – either by declaring Putin victorious and withdrawing, or by being forcibly removed by insiders. Oil prices fall by 30-40% in three months. Hungary was expelled from NATO, paving the way for Sweden and Finland to join.

The market basically ended flat years (e.g., down 3% to 6%), a huge victory considering how much fear there was. The VIX volatility index dropped from low to mid-20s. NASDAQ’s rents are low, but still make up for more than half of its maximum losses. With a lot of extra pressure, the technology indicator is not cheap, but it is much less expensive than the pre-correction.

Scenario 2: Everything goes wrong: Delta to Omincron to BA2: Covid continues to vary, with more dangerous and deadly forms. Rolling lockdown fails to contain outbreak. Florida refuses to cooperate with the CDC / NIH and remains the country’s superspreader feeder region. Hospital admissions have killed millions more in the United States.

The epidemic prevents the supply chain from being disrupted. To make matters worse, China’s Zero Covid policy. The world’s manufacturing capital is in recession, shrinking for the rest of the year. Due to the inability to supply the basic goods, almost everything is in short supply.

Including food and energy: Russian aggression in Ukraine has become a slogan, an endless war: Ukrainians fight against invaders, funded and supplied by Western proxies. Ukrainian food production declines, as does Russian energy exports. (China bought all of the Russian output). Oil goes up to 200 200 a barrel, and gasoline in the United States rises to $ 9 / gallon.

The Fed continues to raise rates despite the lack of growth impact. At 5% Fed funding rate, the United States is already in recession, but prices are up. The predominance of stagflation titles.

The combination of lockdown, inflation and recession sent markets into a tailspin. The S&P500 drops another 35% to close at 2500, and the Nasdaq halves below 6000 from here. VIX’s spike kisses 50 then 60, finally 70

Possibility: Given all these potential variables, it is impossible to confidently predict what will happen at the end of the year.1 My wishful thinking is that we have finished 2022 closer to Scenario 1, for which some things need to be done properly to avoid a few possible catastrophes. There must be something wrong with Scenario 2 – it’s impossible, but not impossible.

I will differentiate between good and bad like this:

Great! 20% Inflation fades, needle threading ends as wars and epidemics end, market volatility ends, indicators recover. Dismount to a perfect fade and they stick to landing.

Good! 30% A soft landing and no recession. A few sectors are lagging behind, but overall, the economy remains strong. Inflation turns out to be transient after all.

Meh! 20% A difficult landing: the pilot taxi terminal is what is left from the plane, and thanks to us things are not bad. Maybe a mild recession or flat GDP makes people nervous, but unemployment rises from 3.6% to 5%. Inflation is easy, but not as much as expected.

Bad! 20% Only a few problems work, but most do not. A recession drives unemployment above 6%, but inflation remains mostly stubborn.

Bad! 10% Terrible! Everything goes to hell at once …

About half of my scenarios are pretty good, and half are not so good.


When thinking about the future, we need to know what the potential consequences are, what the externalities might be and what the potential outcomes are. Getting to this world is not only realistic, it is a healthy way to think about risks and rewards.

Nobody Knows, Kentucky Derby Edition (May 9, 2022)

Capitulation Playbook (May 19, 2022)

Secular vs. Cyclic Markets (2022) (May 16, 2022)

Transit taking longer than expected (February 10, 2022)


1. If enough forecasters guess, one will be miraculously right, giving them a chance to cash in on their random fortunes.

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