So what will the headlines in 2023 read?
But before crystal ball gazing, a dicey business, let’s set the stage.
The festive season has arrived, and the mood is gloomy for investors. Perhaps 2022 will be the year that nothing worked with every asset class along the risk spectrum, from stocks to bonds shedding value.
It has been a painful year for investors, as more than 13 trillion USD was wiped off portfolios in 2022, making it the worst in four decades as central banks tighten liquidity to choke off demand to tame high inflation levels not seen since the seventeens.
“Perhaps 2022 will be the year that nothing worked with every asset class along the risk spectrum, from stocks to bonds shedding value”
But there was no sedative from the no pain, no gain Fed Chair Powell in cahoots with ECB, and BoE as they delivered their festive December message; a 50 basis point rate hike. Fed’s upper limit rate is 4.5%, the ECB interest rate is 2.75%, and the BoE interest rate is 3.5%, at the time of writing.
Meanwhile, inflation rages in Europe in the double digits as the ongoing war in the geographic center of the continent, Europe’s breadbasket and energy logistic hub bleeds on.
So Powell and his cahoots delivered black coal for the Santa rally. Investors, unable to take more punishment, shut down their computers for 2022, hoping and praying their pain has ended.
In short, 2022 closes with great uncertainties, spiraling prices, rising cost of credit, recession, a bear market, war in Europe, and battle fatigue investors.
“inflation rages in Europe in the double digits as the ongoing war in the geographic center of the continent, Europe’s breadbasket and energy logistic hub bleeds on”
The analysis of cycles suggests the best time to buy is when investor psychology is depressed and central bank liquidity has contracted to a trough. But determining where liquidity is in the cycle is difficult to do. How do you quantify the Fed heads more pain medicine to get inflation down?
So with the stage defined, let’s take a guestimate of what the headlines in 2023 will read.
The zombie apocalypse could be a feature in Q1 headlines in 2023
Zombi companies are those with no proven business model. They are companies unable to post a profit and unlikely to do so. Zombies survive not because they have a viable business model. Instead, they are kept alive on the life support system of emergency monetary policy, a near-zero interest rate policy.
A decade-long emergency monetary policy has littered the investing landscape with Zombies. Central bank transition to monetary policy normalization could trigger a wave of bankruptcies in unprofitable companies with unrealistic or poor prospects.
“If 2022 was the year of pain for investors, then the headlines in 2023 could be filled with economic pain felt by millions” – Win Investing
The US junk bond sell-off in Q4, 20022, these are high-yielding risky corporate bonds with below prime credit ratings, could be a heads up of a pending zombie apocalypse.
A recovery in high-risk assets, such as Junk bonds, could signal the trough of central bank liquidity.
Signs of inflation peaking and central bank easing could also be in the headlines in 2023 when central banks decide that the pain is enough
The entire market has been nationalized, with central banks driving asset prices.
A wave of layoffs and investment projects shelved could fill headlines in 2023
So the Fed head wants to tame inflation by weakening demand through tighter liquidity conditions.
The year 2022 draws to a close, with Goldman Sachs cutting thousands of staff in December. We anticipate layoff will accelerate in January, making daily headlines in 2023.
Goldman cutting staff could be a sign of an investment recession in 2023, which defines a recession with symptoms of rising unemployment.
If 2022 was the year of pain for investors, then the headlines in 2023 could be filled with economic pain felt by millions.
The rising unemployment rate and hardship are likely to fuel political extremism as the populace looks for a savior, which could fill the headlines in 2023
We are forecasting unemployment to skyrocket at breakneck speed in Q1, far higher than the 2008 financial crisis. Employers are reluctant to lay off their workers just before Christmas, the layoff trend accelerates in the new year.
The march to poverty of millions, which I correctly forecasted years ago, triggered by a currency crisis and a cost of living crisis could become too fast and impossible to brush under the carpet in 2023.
“Decades of zero to near-zero interest rates mean that the real estate market is in a speculative bubble, which has yet to burst” – Win Investing
Strikes, cost of living protests, and riots could all fill the headlines in 2023
Stagflation and deflation could fill the headlines in 2023
Demand destruction could lead to falling prices, with retailers offering deep discounts to stimulate sales.
But destroying demand to reduce inflation is a double-edged sword.
Tighter monetary conditions increase bowing costs, an input cost for many businesses, and raise the break-even point. In other words, supply contracts leading to scarcity and higher prices.
So inflation could remain higher for a longer time during this recession.
A real estate crash could also make the headlines in 2023
Property is the most leveraged asset, bearing in mind most purchases are financed with credit and are not cash buyers.
Decades of zero to near-zero interest rates mean that the real estate market is in a speculative bubble, which has yet to burst.
Prices are starting to fall as many buyers can no longer afford the cost of servicing a mortgage which has gone up by 20 to 30%. Moreover, the maintenance costs associated with home ownership, property maintenance materials and labor, insurance, and property taxes have priced many would-be homeowners out of the market.
So I see demand destruction as the greatest in the real estate market, with commercial real estate being worse impacted due to the boom in work from the home macro trend.
Business investment cuts and rising unemployment could lead to mortgage delinquencies and home foreclosures, which could all make headlines in 2023
So real estate will be hit with the perfect storm of oversupply and destroyed demand. A real estate crash is on the cards. Those in a fortunate position of having liquidity and income could find incredible bargains
To be continued in part 2, headlines in 2023