What Do You Think?

Our inboxes are full of market and economy projections for 2023, most of which are completely worthless. In early December, 2021, Reuters ran a story with this opening line:

“The S&P 500 will gain 7.5% between now and the end of 2022 to finish at 4,910, driven by earnings and economic growth that will extend this year’s rally, according to the median prediction in a Reuters poll of strategists.”

The S&P 500 closed 2022 at 3,839.50. They were only off by 1,000 points! So much for experts.

Nonetheless, there are a few that come up with thought provoking comments on the coming year. One of those is Byron Wein, now with Blackstone, who over the last 38 years has created a list of the top ten ‘surprises’ for the coming year. He defines a surprise as something the average investor gives a one-in-three chance of occurring, but where he perceives a better than even chance of actually occurring. Last year, five of his ten were essentially correct, three were incorrect and the other two were partially correct, which is a very respectable performance, especially in a year that proved so unpredictable! Here is his list for 2023:

1) Multiple candidates on both sides of the aisle organize campaigns to secure their party’s presidential nomination. There are new headliner names on the respective tickets for 2024.

2) The Federal Reserve remains in a tug-of-war with inflation, so it puts the word “pivot” on the shelf alongside the word “transitory.” The fed funds rate moves above the Personal Consumption Expenditures price index and real interest rates turn positive; a rare phenomenon relative to the last decade.

3) While the Fed is successful in dampening inflation, it over-stays its time in restrictive territory. Margins are squeezed in a mild recession.

4) Despite Fed tightening, the market reaches a bottom by mid-year and begins a recovery comparable to 2009.

5) Every significant correction in the market has in the past been accompanied by a financial “accident.” Cryptocurrencies had a major correction and that proved not to be a systemic event. This time, Modern Monetary Theory is fully discredited because deficits have proven to be inflationary.

6) The Fed remains more hawkish than other central banks, and the US dollar stays strong against major currency pairs, including the yen and euro. This creates a generational opportunity for dollar-based investors to invest in Japanese and European assets.

7) China edges toward its growth objective of 5.5% and works aggressively to re-establish strong trade relationships with the West, with positive implications for real assets and commodities.

8) The US becomes not only the largest producer of oil, but also the friendliest supplier. The price of oil drops primarily as a result of a global recession, but also because of increased hydraulic fracking and greater production from the Middle East and Venezuela. The price of West Texas Intermediate crude touches $50 this year, but there’s a $100 tick out there sometime beyond 2023 as the world recovers.

9) The bombardment, destruction and casualties in Ukraine continue for the first half of 2023. In the second half, the combination of suffering and cost on both sides necessitates a ceasefire and negotiations on a territorial split begin.

10) In spite of the reluctance of advertisers to continue to support the site and the skepticism of creditors about the quality of the firm’s debt, Elon Musk gets Twitter back on the path to recovery by the end of the year.

What Do We Think?

Frankly, we like his list. We’d have the most problem with:

5) (We doubt Modern Monetary Theory will go away that easily. Republicans and Democrats like to spend money they don’t have) and;

7) (We view the break with China as irreparable for an extended period. Both China and Russia desire a break from the dollar dominated economy).

What Do You Think?

We’d like to know what you think. Email us and let us know how you feel about these ‘surprises’ for 2023 and maybe add some surprises that you expect.

Tail Wags Dog (Again)

Despite losing 13 consecutive votes, McCarthy appears closer than ever to finally being elected as Speaker of the House. At this writing, the House is adjourned until 10PM Friday and he’s not quite over the finish line, despite making major concessions to the extreme right wing of the party. If the stock market loves gridlock in Washington, they should love this. Even with a McCarthy victory, a GOP House and Democratic Senate promises gridlock for another 2 years.

Over the last two years, we had Sen. Manchin and Sinema with the critical votes to push the Democratic agenda, enabling them to move the more progressive base to a more centrist position. That was pretty messy but now, as Republicans take control of the House (tic), we now have a similar situation that is already uglier. These very slim Congressional majorities continue to give us ‘tail wags dog’ stories. The good news is that a divided Congress can’t get much accomplished and therefore can’t create more problems for markets. The bad news is that the stock market has plenty of other concerns and is acting accordingly.