Quote of the Week
“You will know how far you can go when you pursue your passion and never stop trying.”
– Lailah Gifty Akita
Welcome to 2023. We are looking forward to a good year for the portfolios. The economic indicators are much clearer this year than last year. With the addition of Omega Squared as our new advisor, we are confident that we will be better able to execute the necessary changes needed.
We are currently in cash plus a small percentage in the Private Equity Fund for the managed portfolios. The good news for those portfolios is that the money market or cash position is paying around 3.30% which is much better than what we got last year. The annuity portfolios are positioned in U.S. Treasuries and high grade bonds.
What we expect to happen is that longer term interest rates will start to fall in the next few months as the economy tanks. This will give us the opportunity to invest in long duration U.S. Treasuries and appreciation if rates fall in fixed income. Remember when interest rates fall bond prices go up. We do not see any opportunities in the stock markets at this point in time.
As far as the economy is concerned we see a continued downward spiral. U.S. Manufacturing fell from 49.0 to 48.4 in November. Any reading below 50.0 indicates contraction. New manufacturing orders fell from 47.2 to to 45.2. Inflation is coming down slightly but that is a negative for profits which is only one factor in the coming corporate profits recession.
Just a little year end fact: since to top of the market in January 2022, the total loss in value of the S&P 500 is over nine trillion dollars.
Just a few economic facts from November foretelling the coming economic decline:
Everyone says the consumer is in good shape. This couldn’t be further from the truth because personal savings just went negative to -2.4%
Small business employment went negative by -5.2%.
Temporary staffing is at a negative -17.2%
Even the rich are feeling the pinch with luxury goods purchases down -7.4%.
Add to all of this, the latest Federal Reserve minutes just came out. According to internal discussions at the Fed’s meeting three weeks ago, no Fed officials thought it would be appropriate to begin cutting rates in 2023 and officials worried easing financial conditions could complicate the central bank’s efforts to bring down inflation. Minutes from the central bank’s December inflation data stressed it would take substantially more evidence of progress to be confident inflation was coming down in a sustained manner.
The Fed raised rates by half of a percent in December to a range of 4.25%-4.50%. They projected last month that the rate would peak at 5.1% to 5.4%. If the Fed keeps the rate that high throughout 2023 the economy will suffer and the stock markets will also suffer.
This all adds up to a bad economy and a bad stock market going forward. However all is not lost. We will be able to enter the stock market at substantially reduced prices when the Fed pivots and the economy starts to improve. When will that happen? The data will let us know.