MARKET INSIGHTS
November 20, 2023
Our 10 Surprises for the New Year
By 2X Wealth Group
In memory of famous investor Byron Wien, who was known for his list of 10 surprises each year, we provide our own list of potential economic, financial, and political surprises for 2024. Byron started the tradition in 1986 when he was chief investment strategist at Morgan Stanley and continued publishing it at Blackstone until his death earlier this year. A concept is considered a ‘surprise’ if the average investor assigns a less than a 1 in 3 chance of its occurrence, but we give it a more than 50% chance of happening.
The List
  • Inflation is not going back to 2%. In order to maintain credibility, the Federal Reserve needs to maintain its mantra of reaching a 2% goal, whether it is possible or not. We believe low population growth and lack of workers will keep the pressure on wages, deglobalization will reverse the deflationary trends of the past, and shrinking commodity supply will pressure prices.
  • The Federal Reserve does not cut interest rates in 2024. Read Jerome Powell’s lips - “We aren’t even talking about dropping rates.” The market is predicting rate cuts, but we think the Fed is not going to risk a rebound in inflation like the 1970s. The only circumstance leading to a policy change would be an unexpectedly severe recession.
  • The U.S. enters a recession in 2024. There are long lags between raising interest rates and slowing the economy. This time, the lag could be extended due to the pandemic stimulus payments. Recently, job growth and availability have slowed, and the banks are restricting lending. Defaults on credit cards hit a 10-year high in September and auto loan defaults hit a a 29-year high last month.
  • Oil prices will not fall as much as expected in a recession and will quickly rebound. Historically, when companies underinvested in commodity capital spending prior to a recession, commodities subsequently outperformed the S&P 500. Recently, the growth of ESG investing has led to reduced capital spending in energy and metals. Today, capital spending for the oil supermajors is 30% below 2019 levels and 60% below the 2010 to 2016 average.
  • Interest rates will fall in a recession but will likely rise again soon after. As economic activity recovers interest rates naturally rise. With U.S. national debt at 121.6% of GDP, the sheer volume of current Treasury bond issuance causes rates to go higher.
  • Gold will continue to outperform government bonds. While both gold and government bonds are a safe haven in times of economic or political stress, the supply of physical gold is not rising nearly as quickly as the supply of bonds. Further, as the volume of Treasury issuance rises, we are also seeing a decline in foreign buyers who were once substantial holders (think China and Japan).
  • Trading of oil and other commodities will be done in currencies other than the dollar.  The rising value of the dollar has increased the cost of buying commodities in local currencies around the world. Foreign countries would prefer to trade in their own currencies for both geopolitical and cost reasons.
  • The U.S. Presidential election will not be Trump versus Biden. We can always hope. At what point do age and criminality become issues, and what about a third-party candidate?
  • Chinese economic growth rates will rise again. President Xi will pivot due to the poor results from the pandemic lock downs and communist party policy to restrict large technology company’s power.
  • Political instability will cause food insecurity in less developed nations. Food insecurity and political instability often influence each other. In 2024, the political instability of war combined with the actual destruction of arable land and nutrients will cause food scarcity.
In the spirit of surprises, we were reminded of an old joke by famed investor David Einhorn: A newscaster reports, ‘The Russians launched ICBMs at America this morning, causing the stock market to plunge, but it rebounded sharply in the afternoon on a rumor that the Fed might cut the discount rate.’ …Investors have been conditioned to ignore geopolitical risk.”  We think investors should be less complacent in the current environment.
If you would like to discuss how these perspectives influence our investment strategy, please send us an email or give us a call.
* * *
We have given a nod to Byron Wein in past blogs. In October of 2020, we came up with our own list of 10 inevitables - a little twist on the concept of surprises. Below is our list of concepts that we believed were either necessary or inevitable in the future.
  • As a country, the U.S. needs to address those who have suffered the most during the pandemic.
  • The economic status of lower income citizens needs to improve, or we risk increased social unrest and the inability to grow our consumer spending-based economy.
  • With healthcare costs skyrocketing in the last decade, affordable healthcare in the U.S. must happen.
  • The crumbling infrastructure in the U.S. must be fixed.
  • U.S. debt rising as a percentage of GDP and the concomitant printing of U.S. dollars destabilizes our currency and pressures the dollar’s value.
  • The dollar will eventually be replaced as a reserve currency, possibly by a new multi- government cryptocurrency.
  • The recovery in the U.S. will lead to increased inflation this time, partly due to changes in Federal Reserve policy allowing inflation to run hot (above 2%).
  • Legalization of marijuana is a matter of when, not if, and may help fund some of our borrowings.  
  • China will challenge the U.S. as the world’s most important economy.
  • Emerging markets have much to gain from positive population demographics and a weaker dollar.
Happy holidays!

The material included herein is not to be reproduced or distributed to others without the Firm’s express written consent. This material is being provided for informational purposes, and is not intended to be a formal research report, a general guide to investing, or as a source of any specific investment recommendations and makes no implied or express recommendations concerning the manner in which any accounts should be handled. Any opinions expressed in this material are only current opinions and while the information contained is believed to be reliable there is no representation that it is accurate or complete and it should not be relied upon as such. Investing involves risk, including loss of principal, and no assurance can be given that a specific investment objective will be achieved.  

The Firm accepts no liability for loss arising from the use of this material. However, Federal and state securities laws impose liabilities under certain circumstances on persons who act in good faith and nothing herein shall constitute a waiver or other limitation of any rights that an investor may have under Federal or state securities laws.

‍
2x Wealth Group is a team at Ingalls & Snyder, LLC.,1325 Avenue of the Americas, New York, NY 10019-6066 | (212) 269-7757