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Well what a strange year 2022 was. People couldn't afford to leave their homes due to historically high gas prices, but they also couldn't afford to stay home because of historically high grocery prices. The left-wing media said everything was "transitory," while the right-wing media said everything was "Biden's fault" and the global media actually got to the root of the issue which was "a combination of irresponsible global spending coupled with a war in Ukraine which savaged energy prices." Regardless, 2023 is off to a hot start, so here are my economic predictions for the rest of the year!
1. We Will Avoid a "U.S. Recession" In The Common Understanding of the Term
Point number one and we're already starting with a big caveat: I know we're already "in a recession." Technically, a recession is defined as two consecutive quarters of negative GDP growth, which we've already seen. However, we haven't really *felt* a recession, in the common sense of the term, at least in the U.S. economy. Sure, global growth has slowed, but we're in a weird spot.
Home prices are falling (more on that in a minute), but not that fast. We're not seeing the foreclosures of the 2008 global financial crisis, or even the strife of the dot-com bubble in the early 2000's. The central banks around the world are raising the temperature on interest rate hikes, but we're not seeing 20%+ falls in the equity markets as a result due to the stepped nature of the higher interest rates. Energy prices are high, but we're seeing other advanced economies like the United Kingdom partially subsidizing those high energy costs to spur economic recovery (shout out to the homie Liz Truss). We're seeing high inflation, but it's already started to come down in recent months. And typically in a global recession, we see the blue collar labor market hit the hardest with a high unemployment rate and food stamps. That isn't happening this time.
This is what the head of the United States Federal Reserve, Jerome Powell, would call a "soft landing," (effectively dodging a severe slowdown of the global economy) and it was unthinkable about 6 months ago. Gas prices were at an all time high, eggs cost $6 (they still cost $6 by the way), inflation was labelled "transitory" and aggressive monetary tightening led to some lean months in the stock market. However, I think that the Fed is actually going to fall ass backwards into a soft landing, putting 2023 into the "mild recession" category.
2. House Prices Won't Really Fall That Much This Year
Looking at real estate prices over the last two years has been borderline pornagraphic for current homeowners. New mortgage rates fell to less than 3% for a 30-year fixed mortgage, all while home prices shot up like the Viagra just kicked in. For non-homeowners, however, this was worst case scenario.
Homes became inaccessible. Even with lower interest rates theoretically lowering the monthly costs of homeownership, the skyrocketing home prices offset the affordability. Rents ticked down, then ticked up, then ticked way up, causing an affordability crisis among non-homeowners. Not to mention that global inflation kicked the crap out of construction and commodity prices across the board, meaning that actual home supply was, well, in short supply. I think that the affordability of the housing market continue to be an issue in the coming year; not because of inflation, but because of rates.
Homeowners like myself decided to take their formerly pretty high interest rates locked in in 2017-2019 and refinance into historically low rates in 2020. My wife and I personally lowered our 30-year fixed rate from 5% in 2018 to 3.25% in 2020, lowering our payments by over $500 per month. But there's now a catch for all of those sweet refinances: we're rate locked! Would you want to upgrade your home now in a period of high interest rates where you could see your monthly payments skyrocket, all while the cost of everything non-housing related is still inflated? Probably not, which I think is going to maintain the incredible housing supply shortage we've seen over the last few years. I think non-homeowners are still in for a difficult year as they look to combat high prices during the current global economic slowdown.
3. The Best Performing Stock of 2023? Meta Platforms
Disclosure: I own shares of Meta Platforms, which I bought in late 2022. Why did I buy shares of a company that's been beaten down like Adonis Creed on the mat against Pretty Ricky Conlan? Because I think it's being unfairly judged. Let me explain.
Meta (formerly known as "Facebook: the platform your racist grandmother continues to use), is a money printer. It's more effective at spitting out cash than Jerome Powell during a period of quantitative easing, but it had a problem: Mark Zuckerberg.
Thanks to Meta's dual class share structure, Zuck can tell the general public to go to hell and can redirect corporate funds to pretty much whatever he wants. Unfortunately, his passion project is now a stupid set of goggles to transport you into a virtual world called "the metaverse." This idea is what experts refer to as "stupid," but Zuckerberg is full-steam ahead, and that steam is very expensive. Meta has actually spent so much money in the "Reality Labs" division of its company that it prompted a pretty scathing shareholder letter to the board of directors in October 2022 demanding layoffs and a strong reduction in spend in the metaverse project.
So why do I think this is going to get turned around? A few reasons:
Layoffs have already begun (more on that in a minute)
Metaverse spending is increasing, but not how you'd think
You see, most companies spend via debt, and they amortize that debt over several years because interest rates on corporate debt have been essentially "free." Meta, however, has so much cash on hand, and makes so much money on their social media advertising business, that this debt is not amortized. It's paid off. That means that I'm not worried about the company's debt, so let's focus on the cash flow.
In Q4 2022, Meta traded at a P/E ratio of around 13-14. For a tech company that produces cash like it has its own money printer, that's cheap. Like, cheap cheap. Google's parent company, Alphabet, was around the 19 mark last quarter, and Netflix was in and around 40. Don't even get me started on Pinterest at 370. And all of this was at a Meta analyst EPS expectation of $10, of which now they're closer to $14 and expected to hit $20 at the end of this year. Even at levels of average growth, I think Meta could be in for some good news in the coming year, and we've already started to see some of that growth in the early first quarter of 2023.
4. The "Patagonia Vest Layoffs" Will Continue Until the Second Half of the Year
"Well this guy listens to Scott Galloway." Yep, thanks for outing me as a 30 year old American white male in corporate America. However, I think "Patagonia Vest Layoff" is the best term to describe the obliteration of jobs in the tech sector right now, and I don't think that's slowing down until at least the last quarter of this year.
Unfortunately, Elon Musk set the tone at the back end of this past year when Twitter slashed and burned its workforce to the tune of 50%, and for the standard consumer, the platform is running just fine. I think a lot of companies noticed, and they're following suit. Big tech, from Microsoft to Salesforce to Wayfair(??), are making big cuts to their workforces, and they tend to be in pretty high-paying positions.
These tech companies are eliminating those in the income category of "being able to make 'A Day In My Life a X Company' Tik Toks," but that's what's odd. These people are still able to waltz into other, non-Big Tech companies and find similarly high-paying jobs pretty easily. We're seeing these account managers and product managers walk into the financial sector pretty effectively, which is why this upcoming layoffs-based recession may be classified as "moderate recession at worst."
5. Bob Iger Will Make A Big Acquisition
It's officially been a few months since the high-profile Bobicide (double Bobicide?) of former Disney CEO Bob Iger pulling an Undertaker-like turn on his former protege Bob Chapek and stealing the corner office back. Since then, however....nothing's really happened. Disney's share price jumped almost 10% the day the move was announced, but it's fallen back to pre-Iger levels, and Disney's overall strategy still seems a bit muddled.
Iger didn't just come back for nothing, though. Though Disney's board has issued a "succession plan" directive as Iger's main goal, it's been speculated that Iger will be on the search for his next big acquisition. The man that brought Pixar, Marvel, Fox and Lucasfilm under the Disney banner could have his eye on a company ripe for conversion, and I think I've narrowed it down to two:
This one almost makes too much sense, but I think it's the clear favorite. Disney has already conquered the worlds of TV, movies, streaming and hotels and resorts, so what's the final frontier? The meta...thing. Roblox isn't necessarily Zuckerberg's perfect vision of the metaverse, but it's the closest thing we have to a functioning ecosystem outside of our own.
If you're unfamiliar, Roblox is a video game where you can create your own games and worlds inside for others to play, and actually get paid for your work. It's attracted over 200 million monthly active users, and that's drawn big brands like Nike and Paris Hilton(?) to pay for content partnerships inside this digital world to promote their brand.
I think Roblox is the next frontier for Disney. It offers an incredibly unique space to further flesh out the Disney brand in a "Wreck It Ralph" style way, combining marketing with monetization to open new revenue streams. And, while Disney's stock isn't exactly flying high, their enterprise value being 9x that of Roblox's means that this would be a big merger, but not a capitally intensive one that would cripple the company.
This is definitely a weird one, so I'll keep this one quick. Pinterest is the only social media platform designed:
For families, and
To actually drive people away from the platform
Pinterest's layout and functionality are designed to drive people off-site, to a product or service. For Disney, this is the next big marketing play if they can't secure Roblox. Rather than purchase time on a network, wouldn't you just want to own the network? And since Meta and Twitter are either too big or being run into Satan's basement, Pinterest is the next batter up. I think this one also makes a ton of sense, and would be a smaller (though I think less effective) acquisition than the Roblox deal.
So there you have it! These are my top five economic predictions for 2023, and I guess I have a pretty optimistic economic outlook? Do you have predictions of your own for the next year? Let me know in the comments below, or by email on my Contact page. Thanks for reading!