A Personal Note from Cam – Dated January 10, 2023
At the stroke of midnight on New Year’s Eve, it is traditional to sing Auld Lang Syne, a Scottish poem written by Robert Burns in 1788 and set to music in 1799. Auld Lang Syne calls us to welcome the new without forgetting old acquaintances.
As we begin the new year of 2023, many of the concerns and apprehensions of 2022 are old acquaintances we will not forget, as they seem to be following us into the new year.
I am particularly conscious of the rising levels of violence in our world that threatens our security, our freedom and our sense of peace.
As I look around today, I shake my head. What I see happening in our nation, in our government and in our communities is people turning against one another. I ask myself how can that be when America was founded on principles of freedom, trust and accountability and saying “in God we trust?”
As my friend Fr. Joachim Rego, C.P., Superior General of the Passionists shared in his Christmas Message, “while we may be satisfied with seeing peace as the absence of war, fighting, and conflicts, true peace is ‘shalom’ which is a Hebrew word conveying the sense of peace as tranquility, harmony and wholeness.”
I wish you shalom every day!
Living in Gratitude
Trevor had a conversation last week with one of our clients. She told him something she does which helps her focus on living in a state of gratitude. She has something she calls a “Thankful Jar.” Each week, she writes a note for something that she was thankful for during the previous week. On New Year’s Day, she has 52 notes that she reads through to reflect back on the previous year.
Wow, talk about a wonderful idea and a terrific way to keep your life focused on living in a state of gratitude!
A Look Back – Resilience for All the World to See
Ukraine defied the odds and has gone toe-to-toe with Russia over the past ten plus months. What most concluded would be a quick Russian victory has become a stalemate. The incredible resilience of the Ukrainian people has become an inspiration for all of us as we have had to confront the challenges this war inflicted on the global economy.
I believe 2023 will continue the stagnation of this conflict while Russia’s growing isolation from the world stage will cause continued shortages in commodities and energy.
These shortages should be less drastic than in 2022, but a reopening of China’s economy could change this dynamic.
China’s zero-tolerance approach to COVID-19 has resulted in meager economic output from one of the world’s largest economies. As China loosens policies, we may see higher demand for resources; however, this should also help ease the inventory shortages many companies have faced.
An Uneven Economy
Looking back, 2022 was a tough year!
We had the highest inflation in 40 years. Inflation is caused by too much money chasing too few goods. We had too much money due to the COVID pandemic and too few goods due to supply chain disruptions, primarily due to China. Hence inflation hit its highest-level last year in 40 years.
Both stocks and bonds ended the year lower, which is a very rare occurrence.
The Federal Reserve changed course and began tightening significantly as they raised interest rates multiple times. Keep in mind that the Fed has a dual mandate. On one hand they need to keep inflation and unemployment in check. If inflation slows, the Fed will slow. At this moment, the Fed is not worried yet about unemployment.
Although year-over-year inflation appears to be slowing, the Federal Reserve has indicated there is still a long way to go to get inflation under control.
So, the calendar has changed to 2023, but the story remains the same. Inflation, rising interest rates and an economic slowdown will probably continue dominating the news cycle for the first half of the year.
Interest rates will most likely continue to rise as the Fed uses rates as its primary tool against inflation. My best guess at the moment is that the Fed Funds Rate will peak at 5.25% - 6.00% during this rate increase cycle.
While memories of recent recessions invoke frustration for many of us, if in fact we have a recession in 2023, it will most likely look and feel drastically different from the Tech Bubble burst in 2001 or the Global Financial Crisis in 2008.
In 2023, I would expect we see uneven slowdowns industry by industry rather than a wide spread economic decline.
A colleague once shared a story that I believe helps better explain the potential impacts that can occur during a recession referencing the “wave cheer” that one might witness going through a crowd at a ball game.
Picture the “wave cheer” going through the crowd at a sporting event. You can see your turn approaching from across the stadium, and when it reaches your section, you stand up and cheer, then you go back to enjoying the game as the wave moves on. Although the wave moves through the entire stadium, only a few sections experience the ups and downs at any one time.
With that thought in mind, watch for recessionary conditions to ripple from one industry to another, causing brief slowdowns before a return to growth will occur in the U.S. and worldwide economies.
Keep Investing Simple
With low interest rates and easy money over the past decade, some investors desired higher returns. They did this by using riskier investments. In 2022, these dynamics changed.
With increasing interest rates as the catalyst, this led to a flight from growth companies with a selloff in technology stocks leading the way. Other highly speculative assets, such as cryptocurrencies, special purpose acquisition companies (SPACs), and non-fungible tokens (NTFs), also saw dramatic crashes.
The reality of 2022 is that there was nowhere for investors to hide. Economic uncertainty and geopolitical turmoil spread fear into all areas of the financial markets.
The encouraging news is that stocks are forward-looking. The drop in prices last year considers these ongoing challenges and also anticipated headwinds in 2023.
In my opinion, 2023 holds far more upside for each of us. Trevor’s and my task are to help you avoid speculative investments and build and monitor a diversified portfolio.
It is impossible to predict what the year will bring. From experience, Trevor and I know the value of maintaining a long-term perspective when investing. After all, market volatility presents opportunities to either make mistakes or take advantage of the mistakes of others. It is essential to have an investment plan and stick with it.
If you have questions about your investment plan or investment strategy, please reach out to Trevor or me at (818) 841-1746.
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