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I Was Wrong

Over the years, I’ve learned I’ll almost always be surprised by markets to some degree and that the trick is to not be surprised that you’re surprised.

It’s a lesson that served me well in the highly unpredictable year that was 2023.  Yes, 2020 was bonkers, too, but we called for overweighting income strategies and alternatives in the very first week of the year and we called the market low to the day.  We even called the Presidential election in favor of Joe Biden in early July, 2020.

On December 20, 2021, one week before the S&P 500’s all-time high, we called for selling the Nasdaq 100 (QQQ) and the S&P 500 (SPY, VOO, etc.), and in June, 2022, we recommended continuing to hold cash--  the market declined more than another 10% over the following four months. 

At the height of this year’s banking crisis, we recommended emphasizing large money-center banks as opposed to regionals.  The regional bank etf (KRE) fell another 20%+ over the next month and a half while JP Morgan rallied 13% in just a couple of weeks.

We also called for a surge in biotech and pharma mergers and acquisitions in the end of May—  it was another call that hit the nail on the head with more than $13 billion of deals over the next two months. 


So, we got a lot of things right again this year, but we were clearly wrong about one market phenomenon in particular.  In January, we recommended overweighting energy stocks and oil, and they both surged, rallying some 50%.  However, we reiterated our recommendation to buy oil in October, going so far as to suggest triple-digit oil prices by the end of this year, and crude prices have since tumbled 11%. 

“I may have been early, but I’m not wrong.”

“It’s the same thing! It’s the same thing, Mike!”

We’ve seen interesting effects from both the supply and demand sides of the oil equation over that period.  The supply cuts out of OPEC have happened more or less as we expected, but it doesn’t appear that all members are abiding by them.  For example, Libya and Iran have been increasing their production and don’t appear to be done ramping up.  As for domestic production, we’re seeing record production in some parts of the US that started to increase in earnest when crude prices crept up to around $90 a barrel.

On the demand side, China, where there are ongoing signs of a weakening economy, has seen prices for crude oil fall at their fastest rate since the depths of the pandemic in late 2020.

From these levels, Goldman Sachs has a bullish outlook. It sees world oil demand rising by 1.6 million barrels a day next year and expects that core OPEC members will keep a tight leash on supplies. This will leave global markets with a “modest deficit” and keep prices in a range of $80 to $100 a barrel, according to Goldman’s Daan Struyven.

As we reassess our previous expectation for triple digit oil, Goldman’s price range seems likely.  Not only is it taking longer for China’s economy to roll out of its doldrums, but the Biden administration has made significant efforts to keep the price of oil from reaching triple digits and is extremely unlikely to deviate from that plan in an election year.



Things We’d Like to Be Wrong About in 2024:

The S&P 500 will not be up another 20% in 2024.

According to Bloomberg, analysts at Bank of America, RBC Capital Markets and Deutsche Bank are all calling for the index to reach record highs next year, so maybe we will be wrong about this— although record highs are only a 2% gain away from current levels.  And the average forecast among analysts tracked by Bloomberg is for the S&P to close 2024 at around 4,664, actually lower than where we are as of this writing.

The Fed will not lower interest rates in the first half of 2024.

Rates for long bonds have fallen in recent weeks, yet the fiscal challenges have not disappeared.

This week, we have some large Treasury bond auctions. And looking into 2024, Treasury auction sizes will be, on average, 23% higher than in 2023.  One source of upward pressure on US rates is the $7.6 trillion in US government bonds that will mature over the coming 12 months.  That’s 31% of all outstanding U.S. debt maturing, and it will all have to be replaced…  at higher rates.  It’ll be just like trying to refinance the mortgage that you got three years ago, except that we have to.  Because:

Source: OMB, Haver Analytics, Apollo

There won’t be a soft landing for the economy.

We don’t think there will be a disastrous hard landing, though, either.  2024 will probably be the year of no landing at all. 

Inflation will likely remain elevated due to energy prices and housing, but we doubt the Fed will raise interest rates anymore.  The fact is that most measures of inflation are still running well above the Fed’s 2% target, and it’s not clear that they won’t begin to climb again.  Additionally, there are other problems with the economy--  declining flows of credit, inverted yield curves, bizarre consumer behavior and ever-increasing signs of credit strains (like 401k hardship withdrawals) that raise the possibility that the landing won’t be soft, if there is one.



In times like this, I like to reiterate our firm’s value proposition. 

Cerulli Associates and the Securities Industry and Financial Markets Association (SIFMA) recently conducted a survey of 11,000+ households throughout the course of 2023, each of which either had investable assets exceeding $250,000 or an annual income of $125,000 and a head of the household younger than 45 years of age. 

Their findings were not surprising.  They found that the “advised” investor segment in America has grown from 35% to 47%, while those who consider themselves “self-directed” has fallen from 41% to just 24%.  They also found that in addition to being satisfied with the quality of their advisor’s services, respondents overwhelmingly said the price was right--  79% either agreed or strongly agreed that the advice they receive is worth the expense.  Perhaps even more telling was the finding that the satisfaction rate was 86% among advisor-reliant households and 93% among “advice-seeking” households (i.e. those who are advised in some regards but not others).

I may have been wrong about oil in October, but we do a lot more for clients than just manage their portfolios on a day-to-day basis.  (Besides, we were right about enough other stuff to generate what can only be described as outsized returns this year.)  What’s of at least equal importance, though, is that we provide robustly stress-tested plans to address your unique approach to retirement, philanthropy and multi-generational wealth.  We bring our vast experience in working with corporate stock options, portfolio management, liquidity event planning and retirement income planning and design all to bear on your behalf.

Our goal is to help you protect and enhance your wealth so that you can support the people, causes and institutions that add meaning to your life.  Let us know how we can help, and most of all, have a very, very merry Christmas.

Click here to invest with Chad.

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