Welcome to The Enduring Investor. A newsletter letter focused on investing, finance and economics. I discuss capital markets and share lessons from investing, advising and operating private companies.
If a friend or colleague forwarded this to you, you can easily subscribe by clicking below.
“Interest rates are to asset prices as gravity is to matter.” - Warren Buffet
‘Tis the season of predictions. Here are some rapid-fire thoughts for 2023:
Recession - we’ll likely experience a recession in mid-2023. Severity of the recession is TBD.
Fed will do rate hikes until core inflation falls below 3.5% levels and when they pause, they’ll likely keep rates elevated until inflation falls back to 2%.
Fed will continue to be the center of attention and markets won’t be tamed until inflation cools and rate hikes pause.
Energy sector will continue to outperform next year. The only thing that will impact this is a severe recession causing a reduction in demand.
Tech sector will continue to be turbulent with large swings in growth equities.
Real estate - it won’t be a buyer’s market or seller’s market. Mortgage rates will stay high whilst construction costs will go even higher.
Loan origination will continue to fall as the banking sector will look to amplify earnings in other parts of its portfolio.
Unemployment rate will rise to 5.5%+. There’s a probability of 6%+ if the fed funds rate goes beyond 5.5%.
Labor market and wage inflation is a key driver in Fed’s decision calculus.
Quantitative tightening (QT) impact isn’t discussed enough. Liquidity getting sucked out of the market and cost of capital rising are the main drivers for this regime change. The impact of this will be felt throughout this decade by investors and operators.
Russia-Ukraina war will persist. This will (unfortunately) be a long standing conflict.
Fundraising will remain challenging for startups as VCs will struggle to deploy capital in a recessionary environment.
PE will become very active across all sectors. There are plenty of public companies that can be taken private and restructured. Both platform and bolt-on M&A activity will spike again.
VIX may touch 40 sometime in Q2-Q3 2023. This might signal a bottom.
And as we wrap 2022; this was the worst year for investors since 1871.
P.S. Nothing shared above is investing advice. Use your best judgment when deciding when to invest and how to invest. Consult a professional advisor. Predictions are fun and sometimes wrong. :)
Links Worth Sharing
Howard Marks: Sea Change (10 min read)
Betting On Things That Won’t Change (5 min read)
Buy and hold strategy (5 min read)
Parting Thoughts
I took a break from writing the last few months, but happy to start publishing again.
It’s hard to publish essays on a weekly cadence given my work schedule, so I plan to publish whenever I’m able to.
Thanks for following along and being a subscriber.
Cheers to a great 2023 ahead!