January 5, 2023

PREDICTIONS FOR 2023 

Who has a crystal ball? Certainly not TriStar, as we would not be enjoying this time with you – we’d rather sitting on the beach sipping pina coladas in retirement, right? The studied observations of our partners are throwing out some informed thoughts as to interesting twists for 2023.

The overall thematic word for 2023- “Reset!” Reset is best seen in the need for buyers and sellers of all capital/assets to rearrange expectations of the last few years. Specifically, whether you are a real estate investor, stock picker or run a private equity group, when cost of capital has changed so radically, there needs to be a repricing of all asset classes. The sellers are stuck on older valuations, and willing buyers won’t trade based on cheap capital that doesn’t exist anymore. This recapitalization takes time.

The capital markets are in turmoil, and the stock market hasn’t seen this decline since 2008. It is likely that the Federal Reserve will keep pushing interest rates upward until inflation is under control. The key driver they are looking at is inflated wages. Not until unemployment rises above 4-5% will they slow the pace of rate increases. This central theme will control all economic activity in 2023.

Quick thoughts based on the background above:

1. S & P 500 will return 4% per Goldman Sachs. If 2-year bond yields hover above 4%, why risk stocks? These returns are at or below inflation to real returns will be at zero or negative.
2. 3^rd quarter 2023 will see traders coming together at reduced valuations in all markets – take the first half of the year off as the markets try to find equilibrium
3. Ukraine War will continue – history shows that dictators in Russia must have a victory, or the people will revolt. Putin will not stop until he can show a win, and that will not happen as Ukraine gains optimism with each victory.
4. China will reopen – but slowly – so the China economic engine will rev back up.
5. Dollar will remain favorable to US travelers – it’s great year to travel
6. Second home valuations will fall – but not as much as would be expected. The boomers are retiring and love their homes. But the rest who bought during COVID will find the upkeep and headaches of a second home will have them rethinking the extra burden.
7. Crime and affordable housing will be the #1 political topic. It will dominate local elections and be a major topic at the federal level.
8. Unemployment will top 4% - but only toward the middle to end of the year. Companies will have layoffs. More importantly, there will be a return of the labor force that is not being recorded now, as the COVID subsidies expire and the real employment seeker will be seen.
9. There will be a recession – but it will be mild.

As in all comments of the future, “representation of future events is the opinion of the author…any such reliance on such narrative is solely at the risk of the investor…blah blah blah.”

Happy New Year to you and yours!!