Now that 2022 is in the rearview, let me first congratulate you on making it through one of the worst years in the markets in recent memories. Last year ranked in the Top 8% for volatility of all time. That doesn’t mean it went down more than any other year it means it went up and down like crazy. What’s more, this is the only the 2nd time since the great depression that both stocks AND bonds lost money. If you look back at 1931 and 1969 those were the only other two years where both asset classes betrayed us. (Source)
Some of this can be laid at the feet of the Federal reserve. After only seven meetings, the raised interest rates 4.25%. I can’t remember a quicker ascent. The idea is to put a screeching halt to 9.1% annual inflation. By the way, at that rate prices double in under 8 years. Can you imagine $7 a gallon gas in two more presidential cycles? The problem is the screeching halt to inflation is a screeching halt to the economic engine.
That brings us to my outlook for 2023, which can be summed up as buyer beware.
My concern is that in the real day to day economy, supply chains will be disrupted, labor will be scarce and money will be hard to borrow. The demand for real estate and stuff to fill our houses will abate and people will see this as a good time to pay of their credit cards. A slowdown coupled with a debt unwind.
My concern is that the real economy will also be reflected in the markets. The large companies will hoard cash, the small companies will run out of lines of credit and fail and investors who borrowed will sell investments to pay of their debts. It’s giving 2008 vibes.
All of this can happen quickly and painfully, which is why I also think we can end the year up for 2023 in the broad markets. The key is to have a conservative approach on your personal spending, business investments and investment risk taking.
If I’m wrong you may miss out on the early innings of a bull market. If I’m right you may miss out on 2008 redux. Ask yourself which hurts more: not being able to brag about your success or losing more money and time to market volatility.
One disclaimer: I get to amend my predicaitons every 10 seconds as new information presents itself. If you’d like to discuss, click here.