John P. Calamos, Sr., one of the most prominent financial experts worldwide, says that in 2022 there will be a great deal of volatility in the markets, caused by rising inflation and interest rates.
In an exclusive interview with Greek Reporter, the Greek American founder, chairman, and global chief investment officer of Calamos Investments says that as the world is moving beyond the pandemic we are getting back into a more normal economy — and a more normal economy would see higher than zero interest rates.
“Inflation is coming back strongly, the Fed is raising rates, and this causes market volatility. A lot of this is being caused by the fiscal policy pursued by the Federal government,” Calamos notes.
He says that rising inflation is a “reflection of what has been happening with fiscal policy, more regulations and the cut-down of the oil supply. We have to remember we had the lowest interest rates in decades, forever almost…the biggest part of inflation was due to energy, oil.”
The Fed is tapering off its pandemic-era asset purchases and preparing to hike interest rates to fight inflation. The U.S. consumer price index grew 7.5% over the past year in January, the fastest pace since 1982.
Goldman Sachs Group Inc.’s economists now expect the Fed to raise interest rates seven times this year to contain the surging inflation in the US, up from the five hikes they had seen earlier.
Calamos predicts that in 2022 there will be a more “sideways” market. This occurs when the price of a security trades within a fairly stable range without forming any distinct trends over some period of time. The price action instead oscillates in a horizontal range or channel, with neither the bulls nor bears taking control of prices.
He says that as the pandemic is getting behind us “we are getting back into a more normal economy, and a more normal economy would see better than zero interest rates.
“It’s hard to predict but if the pandemic is behind us we are moving into a normal environment, and that means that the Fed does not need to create money, which is causing inflation.”
Big Tech, Big Corrections
Big tech did very well during the years of the pandemic when the rest of the market was down, Calamos notes.
“But what we are seeing now is a correction. As interest rates go up, the multiple, the PE of tech is coming down. The earnings of big tech are still favorable, the companies are getting larger, but the multiples are coming down,” he says.
He is referring to the Price-to-Earnings (P/E) Ratio, the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.
Future opportunities in Biotech
“Biotech is a very interesting industry in the sense that they are coming up with new solutions for people, but how they get their products to people and the pricing there is always a little uncertainty. Biotech is the place to be but it’s not going to happen overnight, it’s a process going forward,” Calamos says.
No regulation, no Crypto
Calamos is skeptical of cryptocurrencies. Questions such as who is regulating it, where does it come from, why is it going up and down, have not been answered convincingly, he explains.
“It seems that when the market goes down, the cryptocurrency also goes down. You would think that if there was this kind of a hedge the opposite would happen.”
He notes that another risk that has yet to be figured out is the regulatory mechanisms that should be in place. “(Cryptocurrencies) need the regulations. We do not know who is running them, we only see the ups and downs. I think there is a lot of uncertainty there.”
Due to the market volatility, Calamos Investments has created alternative products for investors.
“We have an alternative to fixed income. In an environment of rising interest rates, we have established the Market Neutral Income Fund, which does not have the risk that bonds have as rates go up,” Calamos says.
The Fund generates returns not dependent on interest rates, a key differentiator from traditional bond strategies. It combines two complementary strategies with different responses to volatility: convertible arbitrage seeks alpha and uncorrelated returns, while hedged equity provides income from options writing and upside participation.
“It is a strategy that is doing well and we hope it would help dampen the volatility for investors.”
Confidence in growth
Calamos tells Greek Reporter that the company is also growing thanks to John Koudounis, “our CEO, who has done a great job in helping us do that.”
Calamos Investments now has an ESG fund — portfolios of equities and/or bonds for which environmental, social and governance factors have been integrated into the investment process. This means the equities and bonds contained in the fund have passed stringent tests over how sustainable the company or government is regarding its ESG criteria.
“One of the things that helped me in recent years is building my team. I like focusing on markets that are of great interest to me since I was in college. The markets reflect what is going on in the world. They are really the pulse of what’s happening in the world.
“Why is the market so volatile? Look at the geopolitical risk right now. What will happen in Ukraine and Russia? All that is impacting the market. So, staying involved and thinking about those things, and having those types of discussions with my team is what I really like to do and continue to do,” Calamos says.
The founder of Calamos Investments is a proud Greek-American who has lent his expertise to both nations. He is among the top philanthropists in the entire the Greek-American community and in 2019, he was honored by The Washington Oxi Day Foundation for his heroic service to the United States Air Force during the Vietnam War.
“The US is the greatest country in the world because of its innovation. We mentioned biotech for example. Only the US can find such solutions for humanity and we do not want that to go away,” he tells Greek Reporter.
The closed meeting of the Board of Governors of the Federal Reserve System discussing interest rates is scheduled at 11:30 AM on Monday, February 14, 2022.