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2023 Predictions – End of Year Check In

2023 Predictions – End of Year Check In

December 26, 2023

2023 Predictions – End of Year Check In

As 2023 draws to a close, it’s time to review where we were wrong, where we were right, and add some nuance to what has happened this year:

  • The US economy will experience a recession this year. We believe it will be a mild recession, but we are concerned about tenacious inflation.    
    • We made it all the way to the end of the year without the National Bureau of Economic Research announcing a recession. We’re going to do a piece on what the NBER looks at to determine economic peaks and troughs, but mainly it’s real personal income and nonfarm payroll employment.  With the Fed printing over $4 trillion in 2020-21, it only makes sense that income and employment numbers are up.  However, we did position our managed portfolios with an overweight to value and we were able to keep pace with the S&P500 with less risk.
    • Right or Wrong – Wrong

 

  • The S&P 500 will finish down 2% (3,760) on December 31, 2023.
    • The S&P looks to close up over 20% at this point. Excess liquidity and cash in the system has kept the bears at bay.
    • Right or Wrong – Wrong

 

  • The 10-year Treasury yield will be at 4.00% on December 31, 2022. At the end of 2022 the 10-year sat at 3.88%.  We think there will be a flight to treasuries as the recession takes grip.  However, we also believe inflation will be stickier than markets are predicting.
    • The 10-year is sitting right in the 4% range. This is the historical yield for the 10-year and we believe it is here to stay.
    • Right or Wrong – Right

 

  • The Fed will raise the overnight rates to 5% in 2023 and hold. It appears the Fed is looking at a 0.25% rate increase at the first meeting.  We believe inflation is persistent and will require the Fed to continue to raise rates, perhaps with a pause to evaluate the economy. 
    • Current rate is 5.32%. We expect this to fall in the coming year, putting the yield curve back into a normal curve (short term rates lower than long term rates)
    • Right or Wrong – Right

 

  • Inflation will be transitory, if your definition of transitory is a long time. Inflation is here to stay through 2023.
    • We believe that inflation is here for a while. It is interesting that the markets are putting so much faith in soft-landing generated by a Fed that claimed inflation was transitory just over a year ago.   
    • Right or Wrong – 100% correct.

 

  • The Russia/Ukraine issue will NOT slowly go away. This has evolved into a fight for the survival of two dying countries.  Ukraine simply does not have the population to hold Russia off.  However, the rest of the world has seen it fit to arm the Ukraine to the point to hopefully halt a Russian advance.  This will continue to be a war of attrition, bleeding off the youth of a once mighty empire.
    • This has become a WW1 trench-warfare slog. This favors Russia in the long-term just because of numbers.  The US and Europe are getting what they wanted, Putin is clearly destabilized as exampled by the Wagner putsch, but at what cost of lives?  Not to mention that Russia is the largest nuclear armed country in the world.  Will we push Putin to use the nuclear option?  If we manage to have Putin overthrown, will his successor be an even bigger threat?
    • Right or Wrong – 100% correct.

 

  • Home prices in the US will experience a 5-10% decline in prices. There is not a repeat of the housing crash of 2006-11; inventory is still low, pricing is close to replacement value of the home, and homeowners are reluctant to sell while locked into low rates.
    • Home prices decreased about 6% from their all time high in June of 2022.
    • Right or Wrong – Right

 

  • Electric vehicles will experience a pullback in demand.  It may not reflect in the numbers of units sold, but there is too much noise in the system regarding:  The pollution created in manufacturing the vehicles.  The de facto slavery that permeates the cobalt mining industry.  The lack of electrical infrastructure to support a large fleet of electric vehicles.
    • Inventory is up over 500% from a year ago, Tesla is slashing prices, people worry about the lack of charging stations, and over 57% of people polled said thy would not purchase an electric car for their next vehicle.
    • Right or Wrong – Right, interest is waning.

 

  • China will experience social unrest. Another dying empire.  There has already been capitulation over COVID lockdowns.  As food becomes less available due to the Russia/Ukraine war, look for increased vocalization/unhappiness from the masses.
    • China’s economy is slowing and unemployment is growing. This winter will see less food available due to the Ukraine war.  Look for a more conciliatory China to reach out to the US and Europe in an attempt to grow exports.  However, as the US continues to pull back from protecting the seas for all global shipping, manufacturing will move out of China.
    • Right or Wrong – Too early to call.

 

  • Bitcoin will continue to drop in price. Too much competition (including governmental), too much volatility, too much taxation, too much pollution (energy costs).  It feels like a race to a value of zero.
    • Started the year at $16,605, currently at $42,000 (up 153%!).
    • Right or Wrong – Wrong. Crazy to think that with two wars going on - that oil is down, gold is only up 11%,  but Bitcoin is up 153%!
    • Right – 6/10
    • Wrong – 3/10
    • Too Early to Tell – 1/10