Do you think 2023 will be different than 2022? I don’t. The culture wars aren’t going away. They will get sharper and more pointed as everyone jockeys for 2024. There is no respite from politics these days. We are in a cold Civil War, and resting is not an option.
I think the Fed will raise rates a little higher and take a step back to assess all the things they look at. While they have been more transparent about what they are doing in recent years, I don’t think they are any smarter than they were as an institution. They are always behind the curve.
No one of an institutional nature is admitting we are in a recession yet, but we are.
It’s no surprise that commodity prices are going a bit lower. Much of the reason why is higher interest rates. A stronger US dollar will cause prices to ease. However, I don’t think that will maintain itself. Sometimes, supply/demand just causes prices to rise. I think we will see that in isolated markets. One that comes to mind is beef.
I am also seeing governments raise taxes using the excuse of “inflation”. Talk to a Chicago person about their property tax bill. Of course, the private sector can’t raise wages for employees which puts the taxpayer in a pickle.
What’s that mean for the market? I read a blog at A Wealth of Common Sense about how often the stock market is down two years in a row. It’s 9% of the time. You can see the YTD performance of the stock market in this chart. We have roughly 10 more trading days but it will not be higher on the year. Remember last March when the Wall Street analysts said that it would be up by the end of the year? They were wrong again. Most of the time, they are about as accurate as the Fed.
This chart shows the wreck in tech. $NDQ futures are down 33%!
What do I think happens next year? I still don’t think you can buy the SPY 0.00%↑ until it hits 320. I have seen other people say 300. That being said, I don’t see a “crash” coming. I do see a market that trades within a range.
The winners next year will be the options premium sellers that pick up nickles in front of the steam roller. I think it will be a great year to engage in those kinds of strategies.
Startup valuations should take a hit given the stock market and the increase in the cost of capital. The flip side is that there were a lot of funds raised in 2019-2020 that have to deploy that capital. There is going to be a reckoning in the venture capital industry. My guess is a lot of those funds won’t be able to raise a follow on fund. Startups will have to show meaningful progress, otherwise, they won’t get new funding. Startups that have a business, but aren’t growing fast will have to experience down rounds. A lot of funds will compete to put money into established companies so their tombstones look good. Smart investors will comb through the early-stage market to find ways to allocate capital. Valuations will be down, and the risk-reward math favors the early stage.
People my age (60) who thought about retiring early won’t. Covid made them rethink their lives and gave them the incentive to retire. The Joe Biden Economy was a cold splash of water in their face and is incentivizing them to work. However, many businesses will try and wash their hands of older employees to hire younger ones who are cheaper. You will see a lot of boutique consulting, engineering, M+A, and financial firms crop up in the next year.
Twitter will remain dominant. Remaking a company is messy. Remaking a company that was built to serve a cause into a company that is built to make money for shareholders is really hard. People are getting a transparent look at it happening in real-time. The people that are leaving are all left-wing liberals. I saw startup king Paul Graham leave yesterday. He will be back. They might talk a good game when it comes to freedom but when the rubber meets the road they fade away. Believe me when I tell you I have tried other social media platforms and they don’t have network effects. They aren’t engaging. You can follow me on Twitter @pointsnfigures1. Twitter at the end of 2023 will not look like Twitter today.
The business world gets messier next year. US companies are going to continue to pull out of China and reestablish supply chains closer to home. If Congress can put aside the Civil War for a while, they could offer up tax credits to companies that did that to incentivize it.
Crypto gets really messy next year. In the wake of the Sam Bankman Fried fraud, regulators will finally pounce. I don’t think this is a spectacular development for crypto as a whole. In fact, regulation will slow innovation as funding waits to see what the ground rules are, and entrepreneurs try to figure out how to build businesses inside them. Established crypto businesses that are already regulated will be winners. Coinbase ($COIN) would be an example of that.
I also think the spray-and-pray strategy that venture capitalists and crypto companies took will end. What I mean by this is when you see a nascent company investing a bunch of its own money into other companies, it’s a sign that management is grabbing at straws. Companies that stick to their knitting and focus will be the winners.
I hope you and your family have a great and healthy holiday season. Channukah started yesterday, and Christmas is right around the corner. 6 days away. I hope you get to spend time with family or friends, drink some decent wine, and eat some good food.
The US gets a nice polar vortex cold snap for Christmas. I am going to Chicago to see a doctor for my bum right knee tomorrow so maybe I will get a new one for Christmas. It’s not like I would volunteer to go to the Midwest in December through March unless I had to go.
Please put your predictions for 2023 in the comments. I am interested in them. (echoing Elon, here in the comments and not on other social media sites!)
The War in Ukraine will heat up considerably in 2023. Ukraine will absorb a new front from the north and Putin will learn that you cannot refit an unsuccessful army with a gob of lightly trained conscripts with no NCO corps and a paucity of decent company grade officers and lousy gear and ammo (both being scraped from the bottom of the barrel) and win against men and women fighting for their homeland and freedom.
The Russians will run out of missiles with conventional warheads and artillery ammo in March 2023. Dead flat out.
This will, unfortunately, trigger Putin and he will attempt something of great danger to the world.
Putin will not be in charge of Russia by next Christmas. The Russians will depose Putin by the 4th of July. He will not celebrate another birthday. Ever. Please, God.
There is a decent chance to defang Russia. It would be one of the greatest happenstances in world history. Ever. It would put tremendous pressure on China - another wicked despotism.
Coinbase is down 90% since "go public" reverse merger. At that price, it still isn't a buy. Crypto will devolve into the blockchain - a bit of software wizardry - and Bitcoin. The rest of it will dry up and be gathered for kindling. Gov'ts will begin to roll out digital currency themselves which will only serve to provide one more thing for the NSA to track.
If left alone, Donald Trump's popularity and viability will evaporate in correlation with the price of his NFTs. He will be indicted.
Inflation chugs along at 7-9% and the Fed raises interest rates to double digits.
Biden's health and age -- he's 80! Will be 82 at the next election which implies he would serve until age 86! Not going to happen.
JLM
www.themusingsofthebigredcar.com
Thank you for this column. I'm one of the old guys (67) trying to hang on for another couple years.
Businesses might wish to get rid of old guys like me but can't. Why? Because there are not enough young workers to replace us.
How can that be? Because the pandemic and importantly, the student loan forbearance programs, have disincentivized young, entry-level workers. I see this at my university hospital, where entry positions in clinical research, data management, oversight, and hospital finance simply can't be filled. Nursing is going strong but that's about it.
The student loan forbearance programs mean, simply, that young people who previously had to get a job, any job, so as to start paying the nut now do not need to do so, and they aren't. The pandemic has changed the work calculation; why go to work when you can either work from home or hang with your parents a bit longer? The average student loan repayments typically are several hundred dollars a month; take that away and a young person's cost of living goes down a fair bit. I've heard this time and again when I've tried to hire into the open entry level positions that we have at my university. Add to this the demands for continued work-from-home (ask Twitter and Apple how that will be tolerated in 2023) and you have real issues moving young people into the work force.
I'm not smart enough to opine on the rest, but young people aren't coming into the labor market in early 2023. That's likely good for the rest of us, though that's going to be a knock-on effect for our economy that will reverberate in the next decade.