It is that time of year again…when every magazine and media outlet does their Year in Review, recapping all the news, trends and people that were hot or not. If you are like us, you find all that fun. Less fun is the barrage of end-of-year market reports the big box investment firms are putting out – as if anyone wants to relive what happened to our money in 2022.
By all accounts, this was not a normal year, so rather than rehash the rollercoaster ride, or rinse and repeat an investment outlook for 2023 that is, quite frankly, anyone’s best guess, we thought we would try something original: A dose of honesty and reality.
Read on for our unbiased look back at how the year really played out vs. what some main players pushed.
Most Overused $$ Phrases of 2022
Webster’s has their words of the year (gaslighting*, anyone?), and TradeWinds has ours. As in, the terms most overused in the financial world. How many times in 2022 have you heard these?
Inflation is Transitory
It seems the inflation surge has ended. Perhaps the use of this phrase
will now too.
Fed’s Soft-Landing Goal
Now that 50% of investors think reducing inflation without a severe economic downturn is unrealistic, the new word to watch out for is “stagflation.” (i.e. an economic cycle marked by high levels of inflation and unemployment.)
Cash is King
Yes, cold hard cash may be worth more than its weight in gold, but many Americans are still ok paying a credit card surcharge at their local restaurants. And don’t forget about retail companies making it easy for everyone to Buy Now, Pay Later.
A Recession is Coming / We’re Already in One
Whether the recession comes, stays, or goes is many people’s guess. One thing is certain: Recession talks will continue to dominate headlines for at least the next year.
*Gaslighting, as your teenager will tell you, is manipulating someone for your own advantage. As in, “That financial report is gaslighting me to sell newspapers.”
The Problem with Listening to Economists
Credibility can be summed up as a human device to try and determine if someone should be trusted or not. In the finance world, this may look like years of experience, certifications like the CFP®, or a strong recommendation from a family member. Great financial planning forces us to look forward and forecast as best as we can.
So what is the fine line between forecasting and speculation when it comes to investing? Just ask the best investor of all time, Warren Buffett: “I don’t pay any attention to what economists say, frankly. Well, think about it. You have all these economists with 160 IQs that spend their life studying it [financial markets], can you name me one super-wealthy economist that’s ever made money out of securities? No.”
Let’s look at some speculative statements from the well-known names and break things down!
Reports vs. Reality
What they said would happen
“We don’t expect 2022 to look like 2021, especially as monetary policy tightens and fiscal policy becomes less supportive.” – Goldman Sachs, 2021 Annual Report
What really went down
This is a bit like saying “we expect that rain will be wet because we believe water to be wet.” After quite a long period of low interest rates (monetary policy) post-2008, we had already begun a trajectory of rising rates. Setting aside the huge curveball COVID threw, we’d likely be in the ballpark of our current rates. There was just a short detour in Q1 and Q2 of 2020.
Consider this: the average Fed rates since 1981? Around 4.5%. Where are we now? Close to 4%. So it isn’t the level of interest rates that seems to be driving the markets; it is the speed in which we’ve seen them change, in both directions, over the past few years.
As for fiscal policy, the US government had just initiated its largest (by FAR) capital injection into our economy. This made the Troubled Asset Relief Programs (TARPs) and other 2008 relief programs look relatively insignificant ($5 trillion versus $500 billion). There was simply not enough left to give without severe outcomes.
Keep this in proper context: one billion seconds is about 31.5 years…one trillion seconds is 31,688 years – big difference between T and B.
The S&P 500
What they said would happen
In their 2022 Outlook, Morgan Stanley said: “In a view that is “most likely to raise eyebrows,” strategists think the S&P 500 index could decline 5% in 2022 while other developed markets could end the year higher.”
What really went down
Hindsight is 20/20 and we now know that the S&P 500 dropped about 25% at one point this year. At the time of writing, Developed Markets are down around 13.5% – far from “ending the year higher.” And to think that last December, analysts at Morgan Stanley suspected that their estimated performance would “raise eyebrows.”
The fault isn’t Morgan Stanley’s for getting the figures wrong; perhaps the fault should lie in the need to speculate in such a short term with an entity that’s impossible to predict: the financial markets. Think this year caught you off guard? Imagine how the thousands of analysts at one of the top investment firms in the world must feel.
An Honest Outlook for 2023
Instead of sending you a lengthy Annual Report filled with our highly researched estimates and predictions, here at TradeWinds we’re comfortable saying, “I don’t know.” We aren’t interested in timing the market or making speculative moves as a result of the ‘big names’ claiming their insight is superior. We know the power of investing can only be fully harnessed with time and patience; you don’t dig up a seed right after you plant it expecting a sturdy tree. As a part of our planning process, we test high-performing, average, and more prudently, the not-so-great markets.
The best part? We are fiduciaries without pressure to meet a sales goal or make any recommendations that would negatively impact your financial well-being. This means we’re able to conduct our own peer reviews and arrive at our own conclusions. We’re able to develop our own opinion, not on short-term market performance, but rather on how current events may affect your financial future.
Warm wishes and holiday blessings, The TradeWinds team
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