Connect with us


next year | financial times



This article is an in-site version of the unprotected newsletter. Participation here To have our newsletter sent straight to your inbox every day of the week

good morning. We’re eager to hear your market thoughts at the end of the year. What are the biggest risks? chances? What are stock picks and sector bets? Favorite markets? Burning questions? Send it all to: &

Unprotected Outlook for 2023, oh, this is not investment advice, folks

If Ethan or I think we can reliably beat the market, we will do it for a living (I spent a few years trying to outperform the market for a living. It was hard.) We don’t make predictions like the ones below – we take over More or less against the market consensus – with the expectation that we will be right more than half the time.

The goal, instead, is to clarify and crystallize our current thinking about the market. Predictions also create an opportunity for accountability. We all struggle under two powerful cognitive illusions. Looking into the future, we believe we can see the future better than we actually can. Looking back, we think we predicted the future better than we actually did. Making predictions helps control these dual biases.

So it’s not a slight exaggeration to say that the whole point of prediction is that it creates an opportunity to be wrong and to learn something. Besides, making predictions is fun for us and our readers, who can at least look forward to having a good laugh at the end of next year.

The coming year poses a particular challenge to developing a set of fun and motivating predictions. In 2023, more than most years, one prediction horoscope ramps up and defines the rest: What is the path of inflation and how will monetary policy respond to it?? If you think inflation will fall quickly without the help of a recession – the so-called “clean inflation” – that means the US Federal Reserve could start cutting interest rates next year, risk assets should be doing well and Treasury yields for a year 10 years could roll back as long-term inflation fears fade. Alternatively, if you think inflation will be stubborn, and the Fed is determined to stamp it out, that means policy will stay higher for longer, risky assets will struggle, and a recession is more likely.

Unhedged is in the latter camp, and the consensus is thought to be overly optimistic. We think inflation has peaked, but getting close to the Fed’s 2 percent target is going to be tough, and the central bank is really determined to finish the job. However, the latest round of economic data has brought us a bit closer to the market consensus (and the consensus has been creeping our way in recent months as well). It’s boring to say, but the consensus seems to make a lot of sense to us – just very sunny.

Anyway, here it goes. All forecasts for the end of the year unless otherwise noted:

  • Standard & Poor’s 500. The consensus of the strategists is 4,200, or a 10 percent rise from current levels. we take under. Shares are down 20 percent from their highs, below average Non-slump The bear market is down 25 percent, according to research by Ned Davis. Stagnant bear markets are even worse: 35 percent is the average decline. Some, like JPMorgan’s Marko Kolanovic, think the stock will push through the tough first half of 2023, and rebound to finish the year. We’re not buying it, in part because we think a recession is likely to start in the latter part of next year (much of the US economy looks resilient today, and the stimulus savings won’t run out until the third quarter). This bounce may have to wait 24.

  • 10-year bond yield. The economists’ consensus says 3.7 percent by the end of October 2023, or just a shadow above where we are today. We hate to make that call, but we’re dealing with it. What’s disingenuous is that there are a couple of reasons owning a long-standing closet might be in conflict by late next year. On the other hand, if inflation targeting proves difficult (and we think it will be), investors may want more compensation for taking term risk. On the other hand, if the Fed still holds rates near their peaks late next year (our central forecast), the chances that it will eventually push the economy into recession are very high. This will push investors towards the safety of Treasury bonds. We believe that a year from now, the market will have realized that the Fed means business and is fully prepared to take the risk of a recession. Treasury bonds should be more popular than they are now (graph from a Bank of America fund managers survey):

  • Federal funds rate. Market consensus: 4.9 percent peak, 4.4 percent year-end. We think the peak rate is five or five and a quarter, which is just barely making the difference. But the ending looks pretty good to us at the end of the year. The Fed will keep its policy on hold until they are sure. What is her motive for tampering?

  • Consumer price index. The market consensus says: about 2 percent by the end of next year (and beyond). We’ll take care of it. Inflation may slip quickly at first, supported by commodity deflation and weak rent growth. But progress will slow to a crawl next year as inflation reaches its core rate, driven by rising consumption and passing wage prices in The business is labor intensive. The energy can jump again, too. Stubborn inflation should prompt the Fed to raise interest rates for longer, but 2 percent seems unlikely in 2023.

  • Unemployment rate. The consensus of economists says: 4.7 percent in the fourth quarter of 2023. Under. The resilience of the economy suggests that higher rates will take time to really bite. By the end of the year, we’ll have enough unemployment, probably above 4 percent, for everyone to start pointing out Share rule As evidence that the bell of recession has rung. But the strong economy and structural labor shortage It will keep the unemployment rate low.

To sum up the unhedged home view: inflation is more stable than the market thinks; The Fed is more hawkish than the market thinks; risky asset conflict; Long-term markets are under downward pressure as recession begins to take hold late in the year.

Do we have much confidence in any of this? heck no.

Here is our big concern. We don’t see why Covid-19 and the epic stimulus that followed was supposed to fundamentally change the economy. We are back to the pre-crisis low inflation situation sometime ago. Given the company’s strong results, strong job market, surprisingly buoyant markets etc., it seems to us that this return to the old world is going to take some time. But could it happen suddenly? It certainly can. After all, inflation rose quickly.

This is the opinion of some very smart, including Alan Detmeister from UBS, who we spoke to last week. He believes that the current bout of inflation is very similar to the post-war inflationary wave of 1946 and 1948, and is the product of an economy in transition. Once the backlog was cleared and pent-up demand was exhausted, the consumer price index, which had peaked at 20 percent, collapsed. Today, Dittmeister fears the worst: the Fed will hit inflation that would have fallen on its own, sending the economy into recession fearing the Arthur Burns precedent.

We’ll have a few final things to say about the year ahead tomorrow — in our final message for 2023. (Armstrong Wu)

Good read

late but A very powerful filter For the most beautiful political story of the year.

Cryptofinance Scott Chipolina filters out the noise of the global cryptocurrency industry. Participation here

Swamp Notes Expert insights into the intersection of money and power in American politics. Participation here

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *


We need to pay more attention to skewed economic signals




The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

Source link

Continue Reading


Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters




© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

Source link

Continue Reading


German automakers point to easing supply chain problems




Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

Source link

Continue Reading