Christmas vacations are over and 2023 is taking off in earnest. 2022 was a challenging year for investors, businesses and governments. As usual, many forecasts for the past year proved off the mark, some of them widely, while others were spot-on by sheer happenstance. “Prediction is very difficult, especially if it’s about the future,” physicist Niels Bohr is often quoted.
Indeed. But like every year, it didn’t discourage financial pundits from making their predictions for 2023.
Rational analysts dismiss these New Year habits. “What’s so special about this singular date,” they ask,” when we might as well dispense our predictions at the end of a tax year, or at the summer solstice, or on any other arbitrary date?” I am sure they are not right. The first day of the year has significance. We investors read tea leaves with new hope. We want to put away with past losses and start from scratch.
Looking back, we are convinced to have it all seen coming. We love to be right, even when this is an illusion. So, it’s exhilarating and sobering in equal measure to examine records of our past predictions, rather than touched up recollections. ‘Merrily, happily, tumbling into a possible scary 2022’ I titled my predictive piece a year ago. We were still suffering the impact of new waves of COVID at the time.
Governments, terrified by the aggressive, inexorable infectiousness of the Omicron variant, which inflicted the vaccinated and unvaccinated without distinction, were ordering new lockdowns.
Tourism, travel and the hospitality industry looked mortally wounded by a lack of demand, not by disappearing personnel. Well, it all worked out differently. Vaccinations, while not protecting against infections, extenuated the effects of the disease and enabled us to live with COVID like another flu.
Like many others, I saw inflation outgrowing its temporariness and feared the Fed and other central banks to play by the book and to raise interest rates until something breaks. “What ups the ante,” I wrote, “are huge cushions of cash accumulated by both enterprises and consumers, which means that higher interest rates may have a negligible impact for longer. The risks of overdoing it are high, while an even modest lifting of interest rates to say 2.5 per cent will wreak havoc on financial markets.”
Both bonds and shares tanked, and – after ever briefer bear rallies – keep heading south- Andreas Weitzer
We have passed this point a long time ago: Central banks have lifted interest rates with unprecedented speed and many forecasters are today convinced that FED fund rates, or overnight deposit rates, will eventually exceed five per cent per annum. They hover currently between 4.25 per cent and 4.5 per cent.
As we all know, the effect of such hurried monetary tightening on our investment portfolio – was devastating indeed. Both bonds and shares tanked, and after ever briefer bear rallies – keep heading south. We feel the pain and don’t know how to stop the bleeding.
What I did not expect at the beginning of 2022 was a continuation of fiscal largess, even by countries which can ill afford it. This countervails monetary tightening, its inflation-damping intents and the desired moderation of a still buoyant labour market.
Many segments of inflation like rents, services and labour costs are still accelerating; job openings abound; the financial standing of even weak borrowers is holding up; only our savings keep melting away in bouts and leaps.
“Supply may still struggle in a year’s time,” I wrote, “suffering from new waves of infection, labour scarcity and ongoing logistical hiccups.” Well, not quite. Many supply bottlenecks have been evened out, and infections, while continuing in ever newer waves, have a much-lessened impact on productivity. This 2023, China will be the wild card.
As their zero-COVID policy has led to zero growth, the CCP has changed tack and allowed the virus to escape. As a result, many workers will fall ill and not show up at their workplace, and many will die, decimating the workforce. How this will impact the Chinese economy and global supplies I don’t know.
“A Russian invasion of the eastern, Russian-speaking part of Ukraine seems certain” I predicted in December 2021, “and with it a wave of embargoes against Russia”. I mentioned mothballing Nord Stream 2 pipeline: “Be prepared for an EU winter with higher heating bills and a return to coal.”
I was on the scent, but my predictive imagination fell well short of what happened a mere two months later. Russia invaded the whole of Ukraine, blew up the NS2 pipeline herself, stopped delivering gas to Europe through all other pipelines and threatened a nuclear war.
What I should mention is that while I wrote that, I still harboured doubts about Putin carrying through with his irredentist fantasies, becoming totally dissociated from economic reasoning. I thought he was corrupt, not Mussolini. This is why I bought Norilsk Nickel bonds a few days before the invasion, when the securities were already trading at a steep discount, adding to my already sizable portfolio of Russian corporate bonds. Yes, today they are all worthless.
Many of them are legally unsellable and most of them, hobbled by western banking sanctions, pay dividends if at all then with huge delays, and very soon Putin will ban to honour them.
I have to admit I have done this before. I have bought cannabis stock when I advised my readers against it; bought Boeing shares while ridiculing the company in this paper; bought Nicola shares while explaining their fraud; and Supermax, the Malay rubber glove manufacturer, which gained a few thousand per cent during the pandemic, after I had warned readers that they are on their way down.
Why do I do things I myself consider unwise? It is only small wagers admittedly. I don’t bet the house, knowing that things will probably go wrong. I expect the loss. And still, it always hurts when I lose as predicted. Is there a moral undercurrent in this compulsive behaviour, perhaps to atone for my display of know-it-all?
Advice on what to buy and what to sell in the markets is always useless, and often harmful. It either takes advantage of the recipient’s gullibility, or it comes way too late. That said, I will once again make my own, fallible predictions for 2023 in my next column.
Investment decisions should always be a personal affair, reflecting one’s own convictions. And then, forecasts are only one set of possible outcomes, not wrong, but not right either. We must never assume to be clairvoyant. Engineering predictable losses is perhaps my way of paying respect to randomness. It’s a sacrifice. It didn’t help in 2022, when I lost with every investment, good or bad.
Andreas Weitzer is an independent journalist based in Malta.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice, or advice on the buying and selling of financial products.
andreas.weitzer@timesofmalta.com