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Big Picture for 2023

Big Picture for 2023

January 10, 2023

The adage “hope is not a strategy” applies today more then ever.  We all felt last year's pain in many ways.  We see continued challenges and changes for 2023 and there are great ways to prosper.  That said, I feel we have several more storms lined up which will come in waves.  My crystal ball is still as smokey as ever but I can see that a well prepared plan is required to survive and prosper.  The trend items below are real and normally never change overnight.

 Deglobalization - Trade Wars - Economical Wars - Physical Wars - Supply Chain Issues - Energy Supply Issues

 The charts below should help visualize why it is still time to be cautious. (see blog post Strategy Alert - Asset Allocation Mar, 2022)

Below is important to understand because the Fed is tightening money supply as the economy is slowing.  This process is unusual.

The above chart works with the below chart.  Slowdowns, or recessions, take several quarters, not months, to balance.

Here is the conundrum: as the three charts below illustrate, there is high inflation and high global debt.  Inflation for now seems to be moderating (slowing in pace) but debt levels are not. Employment is still holding up so the Fed does not need to pivot.  The market has, and can have, sharp short term rallies which should not be misinterpreted as a long-term trend.  There was a global inflation spike which is cooling but will take time, if not years, to moderate.  Expect inflation at 3% or higher.

See blogs: (Inflation and Rising Interest Rates Dec, 2022 & Inflation Update Aug, 2022)

United States General government debt is currently 138% +/- of GDP.  The four main consequences are: lower national savings and income; higher interest payments, lending to large tax hikes and spending cuts; decreased ability to respond to problems; and risk of a fiscal crisis. Private Debt chart below also creates the same condition for families.

Employment is holding up; however, the news is reporting that companies are reducing payrolls.  The Fed, as part of its mandate, normally steps in when unemployment reaches over 5% to 6% and we are currently under 4%.

This all adds up to challenging market conditions for the next 9 to 13 months.  Recessions normally last 8 to 24 months. A key question is whether we start the clock in June 2022 or this year?

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Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results.