Economic and Markets 2023 Outlook
What Worked for the Past Decades Will Not For The Next
WHAT'S COMING - GLOBAL RECESSION? DEPRESSION? COLLAPSE?
The era of easy money is over.
Russia’s invasion of Ukraine on February 24, 2022 immediately reversed a decades-long push for globalization as NATO pushed its pledged boundaries.
Rampant inflation proved more structural than transitory as record stimulus led to inflation. This is now causing global central banks to pursue aggressive interest rate increases to tighten monetary policy as they attempt to reign in runaway prices. Good luck.
You can’t sell a NFT picture of an ape or a rock for $1M anymore.
Crypto seemed to learn nothing from the Lehman collapse, while Sam Bankerman-Fried (FTX) seems to have learned everything from the late Bernie Madoff.
Buffett took Woods out to the…Woodshed.
Value investing is cool again, and consensus looks to play defense in the first half of 2023.
WHERE IS BUFFET INVESTING?
In the months ahead our BLOG POSTS are going to walk through what we think are the most important concerns for 2023 and beyond:
Cash Flow Matters Not Earnings Multiples
Defensive vs. Cyclical Growth Asset Classes
Energy, Materials, Minerals, Arable Land and
Other Key Resource Declines
Beware of Crypto Currency and Blockchain Scams or the “Next New AI Thing”
Collapsing National Economies and Currencies Events
The New Arena
For sure, it’s now all about rates and what their knock-on effects are. In 2022, the impact that rates had was most heavily felt in financial markets.
For equities (e.g. NASDAQ, et al) - it was the effect of a total multiple collapse amongst the growth names that saw the unprofitable tech basket wipe 60-90% off their values. Taking a basket of high-growth software companies, they started the year off trading at an average of 35x EV/Revenue and now trade at 7x. That is a massive collapse of confidence in growth.
In the fixed-income market - over the last decade, we were in an environment of “There is No Alternative” and now we are in a market where “There are Many Alternatives”. As rates increased, bond prices got crushed to the point where they put up the second worst year ever on record, (you have to go back to the Great Depression to get #1)
However, you can now find yield everywhere across credit and bond markets instead of having to fish into the nefarious barrel of the red-hot alternatives of scam and criminal markets. As more capital crowds around fixed income markets, lighter volume in equities and crypto hoaxes will cause higher volatility making for a bumpy ride this year.
Of course, rates do not exist in a vacuum and are a global central bank tool used to navigate exogenous factors, but it helps us frame how the reactive policies dictate our investment profiles and keeping in mind that above all else:
Nature Bats Last and thus humanity cannot defeat the physical outcomes of Exponential Mathematics.
Cash Flow Matters
A lot of ETF and factor people will proclaim that this was the year of value investing and that value investing is back. What they’re really trying to say is that operating margins and cash flow matter, and we couldn’t agree more.
Or else...
