Max Uncertainty in 2023, So Focus on The Long Term
In a year of max uncertainty due to the divergence of outcomes possible, let's focus on what we know.
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IN THIS PUBLICATION:
- 2023 is likely to be one of the hardest-to-forecast years in recent memory.
- The US government will need more than $15 trillion of financing over the next ten years.
- 8 out of the 10 best performing S&P 500 stocks in 2022 were Oil & Gas related.
Keep in Mind for 2023
- Mental Models: they make decision-making easier, that’s why they matter. We continue to stand with Bobby Vedral and think that this is an “asset deflation” bear market, which implies multi-year negative performing markets, intermittently interrupted by violent short-squeezes as we saw in 2022.
- We quote: “The way I see it is that we are unwinding the “zero interest rate” bubble of the 2010s in three punches (boxing): (1) first a jab to take out the outright ridiculous, like Meme-Stocks, SPACs and various Crypto-visionaries. DONE. (2) Then a cross to take out “long duration”, from Bonds to Tech. That also delivers a blow to “passive investing” given Tech’s concentration in the indices. WORK IN PROGRESS. (3) Finally, a hook to mark down private and illiquid assets. JUST STARTED (see property, with VC/PE next), as they always hope for a short bear-market like 2008/09 to avoid the mark-downs. Not so lucky this time.”
- Max Uncertainty: 2023 is likely to be one of the hardest-to-forecast years in recent memory given the divergence of outcomes possible. We’ve seen reasonable arguments that support high or low inflation, deep recession or no recession at all, high or low unemployment rates, and given that no one really owns a crystal ball (despite some behaving as if they do) we think the most important thing to do right now is to be humble and cautious… very cautious. This is not the time to venture out on the risk curve – there will be a time for it, and we’ll write about our framework for increasing risk tolerance in our Research piece soon, so stay tuned.
- Timing Market Bottoms: if for some reason, you’re instead more upbeat about the prospects of 2023 (“recession is very much priced in”, “the US will achieve a soft landing”, “Fed is approaching terminal rate and is about to pause”), and think (like consensus does) that the market will rebound in 2H, then you’re closely monitoring your entry point to time the right moment to pull the trigger. In that case, we recommend you read our December Markets Update (where we make the case for a soft landing) and our September Macro Report (where we use unemployment data to time equity market bottoms) to hopefully help out with timing (nope, this still isn’t investment advice).
