Fri Jan 6
It is safe to say that ’22 was a tough year for most folks. Most people (money managers included) have been conditioned to a Fed-backed market. How many dips were bought on the rallying cry of Fed pivot? To Powell’s credit, he has said what he means and meant what he said. So where does that leave us going into ‘23? The consensus is that something will break as the Fed maintains its inflation war. If inflation is stubborn, a 6% Fed Funds could be possible. The effects of the ’22 Q1 hikes are only now starting to trickle into the economy. Plenty more to come. I don’t think current forward profit estimates have been factored into prices yet. I see strong headwinds for stocks. This coming decade could be a cesspool for buy and hold investors with limited if not overall negative returns. Get ready to adapt. Learn to use short option premium that can profit without movement. While not for everyone, short-term swing trades can lead profits when markets chop. There is always a way to keep the lights on.
A bigger issue is the macroeconomic trainwreck we are quickly approaching. We have a government and corporate infrastructure used to 0% money. Can our country even service its debt at 6%? I don’t think so. Can most companies remain profitable at a 6% cost of capital? I don’t think so. What happens if something breaks financially? The Fed will panic and start lowering rates. Stocks will have a massive lift on the “pivot” that has finally arrived. But then what happens? Long rates rocket along with inflation. The dollar crashes. Get your lawn chairs out with some popcorn. Watch the massive stock selloff even as the Fed feverishly lowers rates.
So will ’23 be prosperous? Unlikely for the masses but possible for those who stay nimble and trade against the financial consensus.
Good trading!
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