Investors Brace for 2023 Recession Iceberg (Wall Street Cheat Sheet)

S&P 500 1-3-23

As we start 2023, Wall Street appears to be bracing for a “rough landing” by the Fed. Investors were initially alarmed by the decline in US home sales but have since been soothed by recent US employment data. Many see this as evidence of a cooling US economy, which would be welcome news to investors suspicious of central banks that remain too “hawkish” for too long.

My outlook for 2023 is that the equities and credit markets will continue to be costly and precarious.

I’m crossing my fingers that the rubble will provide some exciting, unexplored prospects for the distressed investor. Markets haven’t responded nearly as much as they might because the Fed has been too cautious and timid, but it’s starting to compensate for the lost time.

There will likely be much suffering in the new year as stocks, bonds, and real estate have not yet factored in the possibility of significantly higher interest rates. Most have betted on an early “Fed Pivot.”

We are seeing just the “TIP” of the recession iceberg. The band (Fed and politicians) plays music while the ship is sinking.

FYI Fund managers with a terrible 2022 will definitely struggle to project 2023. Many of this year’s failed M&A targets will likely fare poorly in a recession.

When the interest rate on investments for the last decade was close to zero, people were willing to listen to stories about stock market investments and technologies. Many of these same investments have become useless in the new era of actual capital costs.

2023 Plan

Later this week, I’ll provide premium subscribers with a selection of stocks, ETFs, and sector ideas that will do well in 2023 and help them make money.

Please subscribe to our premium edition here if you want to receive our updated picks and strategy.

US Treasury official: “We are a long way from having a digital dollar.”

Central bank digital currencies (CBDCs) have been the subject of discussion, and several meetings have been attended by government officials, who have also published white papers on the subject.

People often argue that the United States needs a CBDC immediately to protect the dollar’s position as the world’s de facto reserve currency in international trade.

Recent comments from Treasury Undersecretary for Domestic Finance Nellie Liang suggest there is less need to hasten “Fedcoin” development. “My perspective is our global leadership isn’t from our technology,” she says. We owe it to the stability of our institutions, the rule of law, and the efficiency of our financial and legal systems.

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CA has implemented a ban on any diesel vehicles manufactured before 2010.

On January 1, 2023, the California Air Resources Board (CARB) rule passed in 2008 and banned diesel vehicles exceeding 14,000 pounds made before 2010 went into effect. As many as 200,000 automobiles, including 70,000 semi-trucks, violate the regulation. Industry groups claim that 10% of the commercial cars operating in California are now illegal.

Calendar & Events

Markets will be closed on New Year’s Day, the first day of trading for the year. Still, economic announcements will resume the following week, including the highly anticipated December jobs data on Friday. Despite numerous high-profile reports of layoffs in recent months, the US unemployment rate has remained at a relatively low 3.7%. The Fed may become even more aggressive if the jobs report comes in better than expected.

Towards the week’s end, several FOMC members will be delivering speeches that could affect market sentiment.
Manufacturing purchasing managers’ indexes (PMIs) are scheduled for release in both Europe (on Monday) and the United States (on Tuesday) next week (Tuesday).

In addition to the Fed minutes, the ISM Manufacturing PMI and the JOLTS survey of job opportunities will be released on Wednesday. Thursday will begin with the ADP report on US employment and the weekly tally of new claims for unemployment insurance.

Finally, this Friday will be jam-packed with important economic reports, including the US non-farm payrolls report and the European inflation rate.

BONDS

Yields on bonds froze up this week. US 10-year yields settled at 3.86%, the German Bund at 2.51%, and the French OAT at 3.05%. The US 5-year yield has peaked at 3.97%, maintaining the inverted yield curve. As a result, there appears to be nothing new on the horizon, as investors continue to anticipate a recession and disagree on when interest rates should peak, contrary to the Fed’s expectations.

COMMODITIES

OIL & ENERGY

Regarding energy, oil prices have remained relatively unchanged throughout the last month of the year. The European Union restricted the price of Russian black gold in early December at $60 per barrel. Starting on February 1, Russia will no longer sell oil to countries that apply this quota.

While this decision may have short-term effects, the EU has previously planned to reduce its reliance on Russian oil, so the market is not overly concerned. While US West Texas Intermediate (WTI) is selling for around $78.40 per barrel, North Sea Brent is hovering at approximately $83.00.

Natural gas prices have dropped back to the European reference price of 81 EUR/MWh due to the unusually mild weather across the continent.

GOLD & PRECIOUS METALS

Base metals saw minimal weekly movement, capping off a challenging year. The copper price trend this year is evidence of this, as the supposedly reliable indicator of global economic health has fallen by almost 13%. What led to this disastrous outcome? China’s economy has been battling to revive and increase industrial output.

Among commodities, only nickel significantly increased (36% to USD 30,000 per ton) in value.

The Russian Ministry of Finance is revising the program so that the country’s National Wealth Fund can hold solely yuan and gold. This adjustment permits a 40% allocation of gold and a 60% allocation of yuan.

CRYPTOCURRENCY

Unsurprisingly, the cryptocurrency market has been pretty calm this week, with Bitcoin (BTC) trading at roughly $16,500 (down 2.20% since Monday). Unless something miraculous happens in the next 24 hours, Bitcoin is projected to end four consecutive quarters in the red in 2022.

By 2022, the leading cryptocurrency’s valuation will have dropped from $46,000 at the beginning of the year to $16,500, a drop of 62%. Meanwhile, the market value of all digital assets has dropped this year by 66%, from $2.2 trillion to $750 billion.

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