I hope everyone had a fun time this weekend celebrating the end of 2022 and the start of 2023.
And I hope you're ready to get back to work. The markets are almost ready. Tomorrow is the first trading day of the new year.
So, in honor of that, I want to share my predictions for 2023, even if they're not the rosiest I've ever had…
Inflation, Recession, Rate Hikes, and Rate Cuts
First off, I've got to address the elephant in the room that everyone else seems to be happy to ignore.
And that's stagflation, a combination of high inflation and slow growth.
Markets and analysts the world over have spent the past 12 months fretting about one or the other, inflation or a recession.
Not that many people seem to be talking about the potential for both. But that's exactly what I see headed our way.
You see, Wall Street is now run by people who were barely alive the last time inflation reared its ugly head like this; myself included.
So it's natural for all those analysts who've never seen stagflation outside of a textbook to completely ignore it and look for ways our current situation mirrors things they have lived through.
That's why you hear so many comparisons to the dot-com bubble in the early 2000s.
It's the only stock market bubble other than the one that's currently deflating that those analysts have ever seen (again, outside of a textbook).
That's also why you hear them comparing it to 2008 and the housing collapse. It's the only time they've ever seen the real estate market pull back.
But things are incredibly different now than they were at either of those times.
The dot-com bubble was concentrated in a specific industry. The everything bubble affected just about everything.
You could maybe compare the crypto collapse to the dot-com collapse, but that's just one part of this market.
And back in the early 2000s, credit standards weren't what they are today. Anyone who could rub two nickels together got a loan back then.
Adjustable-rate mortgages were flying off the shelves. And many people were buying with zero money down.
Today, credit is a lot tighter. It takes a lot more effort to get financed for a mortgage. Adjustable-rate mortgages are fixed for the first seven years.
And over the past couple of years, homebuyers have been putting more than 20% down on average.
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Back in the 2000s, homebuilders went crazy too and didn't pull back until after the collapse.
That plus all those foreclosures hitting the market created an oversupply of housing.
It's a completely different market today. It's not going to be swept by defaults because lenders were more judicious with their loans.
And homebuilders pulled back far earlier this time around. Plus, they never created the kind of oversupply they did in the early 2000s since labor and supplies were in a shortage.
The market is still tight. There aren't that many homes for sale. So prices aren't likely to collapse the way they did in 2008.
They may slow down. But there's still more demand out there than there is supply.
Housing is a big driver of inflation. So are salaries.
And those are likely to keep rising in 2023, too. The labor market is tight.
There are a few million more jobs than there are people looking for jobs.
That means employers still have to compete for employees.
And with prices still rising, albeit at a slower rate than before, employees are going to demand pay raises to keep up.
That will lead to what's known as the wage-price spiral, where companies raise prices so that they can afford to pay higher wages. But those higher prices cause workers to demand higher salaries.
That results in continued inflation.
Then you've got the other side of the coin: slowing growth.
For the past 20-plus years, debt was free. Near-zero percent interest rates meant that it did not cost any money to carry a high debt load.
As interest rates have risen, the burden of debt has too. So companies are likely to spend less.
That means slowing growth. And that is the hallmark of a recession.
But when you have slowing growth and rising prices, you've got a bad case of stagflation.
There's also the fact that earnings estimates for the stock market are still pretty high. But if we really are headed for the recession everyone seems to think we are, then earnings will shrink.
And when we get earnings compression, we'll see stocks make their second leg down.
The drop we've seen so far has been multiple compression as prices fall to be more in line with earnings.
Next up, earnings will fall and take prices with them. It's Finance 101 stuff.
And then there's the Federal Reserve…
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Populated by a bunch of people who thought it was completely fair for them to trade in advance of their announcements on interest rates and tightening.
You really think they're going to "do what's necessary" to stop inflation? They didn't even recognize it in 2021.
Or maybe they did but wanted to make sure they closed out their trades for profits before doing something about it.
Either way, they showed that they are 100% in this game only for their own benefit.
And that tells me they won't be willing to keep rates high enough for long enough to actually address inflation.
That would mean raising them above the rate of inflation (which they haven't even hinted at doing).
And it would mean causing a deep recession by doing so.
That's not how you get a cushy job in the Treasury Department. And it's certainly not how you work your way into the executive offices at Goldman Sachs.
And that's the end goal for these Fed governors. They just want that cushy job.
And they'll do whatever they need to in order to get it.
That will likely mean cutting rates before inflation falls back to historic levels.
And that will lead to the kind of market we had in the 1970s — a volatile one that ended the decade flat.
The Best Investments for the Worst Markets
Now, I realize that was a big prediction with a lot of smaller predictions wrapped up in it. And it probably doesn't have you incredibly excited to face the year ahead.
But I've got some good news: There is a way to make money in EVERY market.
And that's true in a stagflationary market too.
In fact, four specific types of investments tend to do the best in times of high inflation and low growth.
I've been helping the investors in my wealth-building community position their portfolios for it.
And I want to help you too. So while it wouldn't be fair for me to give out the specifics of what we're buying, I'm going to explain the types of trades instead.
First off, we are and have always been hyper-focused on generating steady income. That's how you get the biggest stock market gains and that's how you secure a comfortable retirement.
And that's not changing. Income is going to be extremely important as prices continue to rise in the market.
And income-generating investments are going to be incredibly popular with all kinds of investors from Main Street to Wall Street (probably even State Street).
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Investments in energy tend to outperform in times like these too. You've already seen it in 2022.
But I expect that outperformance to continue into 2023. The world needs energy all the time.
The world also needs ways to get that energy to people who need it. And ways to get other goods and services to consumers as well.
And that bodes well for infrastructure investments and companies that help to develop and repair that infrastructure.
Real estate is another solid bet for stagflationary times.
It's not ripping up the charts the way it does in zero-interest-rate regimes, but it keeps pace with inflation and protects your money from erosion.
But the end-all, be-all investment for times like those I see heading our way is gold.
It's a hedge against inflation and a boon during stagflation.
During the 1970s, it rose about 400% in value while the inflation-adjusted return for stocks was flat to negative.
It's priced in dollars that are eroding in value. And there's a very limited supply of it.
So those are the trades I expect to really flourish in 2023: income, energy, infrastructure, real estate, and gold.
Good Luck and Godspeed
And there you have it. Those are my predictions for 2023.
I'm not expecting a return to the bull market we've all gotten used to the past 20-plus years.
But I'm not expecting it to be all doom and gloom either.
And of course, there could be some black swan event waiting to happen that I haven't even imagined.
There's a lot of saber-rattling going on in geopolitical circles these days.
It appears our world leaders have forgotten how terrible global wars are and how dangerous a nuclear holocaust would be for everyone.
The global food shortage could turn into a crisis, too, as more nations crack down on environmentally unfriendly practices like farming.
Or we could all come to our senses, declare universal peace, and create a utopian society.
There's always the chance that something completely unexpected could happen.
So, after giving my predictions and hopefully some helpful information about how to invest for them, I'd like to offer one more "helping hand" for your 2023…
And wish you good luck this year in both your life and your investments.
I and the rest of the crew look forward to another year together and to helping you along the way.
To your wealth,
Jason Williams
@TheReal_JayDubs
Angel Research on Youtube
After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter; the founder of Future Giants, a nano cap investing service; the editor of Alpha Profit Machine, an algorithmic trading service designed specifically for retail investors; and authors The Wealth Advisory income stock newsletter. He is also the managing editor of Wealth Daily. To learn more about Jason, click here.
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