17 Dec What Will 2023 Bring?
“2023 will be unpredictable.” – The Lonely Realist
“No.” – Cassandra
TLR readers last heard from Cassandra on October 1st when she predicted that the world would continue to fragment, deglobalize and tribalize, a notably dark view of the future. TLR has consistently looked to Cassandra to test the extremes of pessimism …, and she has not disappointed. TLR earlier this week asked Cassandra for her predictions for 2023 …, and she again has obliged (CAUTION: the contents of TLR, including Cassandra’s comments, are not investment, legal or tax advice):
Dear Mr. Realist:
I read with interest your most recent commentary … called “Unpredictable.” Sadly, it was wrong. It’s premise was ludicrous! There are no unpredictables. As an immortal blessed by the Gods, the future to me is an open book. Your so-called geopolitical analysts, expert economists and media pundits are playing guessing games based on what they believe will incite or excite their audiences. They are incapable of predicting! They are entertainers, not oracles. And, Mr. Realist, your attempts to frame the problems and their solutions merely highlight mortals’ fundamental weaknesses.
Allow me to shine light on your so-called “Unpredictables.”
You ask how the Ukraine War will end. In one word, stalemate. Winter weather in Europe will be no fiercer than usual, crushing Putin’s hopes for a civilian revolt in Ukraine and social and political strife within NATO. By April, Putin will have run out of options and conclude that his only recourse is to use tactical nuclear weapons. That decision will lead Russia’s military to intervene, deposing him in what is intended to be a bloodless coup. The new leadership will quickly declare a unilateral ceasefire that Ukraine will be compelled to honor. Putin and his family will find sanctuary in a deal brokered by Turkey’s Erdogan (who will be lavishly rewarded both personally and politically). Russia’s new leaders will dig in their heels in an effort to freeze then-existing positions. The resulting standoff will push negotiations into 2024 and allow Russia to re-arm with Iranian and Chinese weaponry, using profits earned from sales of oil and gas to China, India, and Turkey. Russia nevertheless is fated to become a Chinese vassal state, requiring the EU to escalate military spending that will weigh on prices and stunt economic growth …, the very definition of stagflation (and a return to the military spending priority that has driven budgets since the beginning of time).
China will not invade Taiwan in 2023. It will continue to build its strength as America and its European allies beggar their treasuries in proxy wars with Chinese and Iranian clients.
Iran’s demonstrations will end in a bloodbath. The theocrats are not about to surrender control. Nor are they inclined to give up their nuclear option.
You ask about inflation? As in the 1970s, “It’s like toothpaste. Once it’s out, you can hardly get it back in again.” The same so-called experts who exhibited optimism at the end of last year by concluding that inflation was “transitory” will find that inflation in 2023 will exceed their guesses. There will be no immaculate disinflation – no soft economic landing. Purported soothsayers today assert that prices soon will be under control because of the Federal Reserve’s Quantitative Tightening. That’s nonsense. Their crystal balls tell them that inflation will come down to 3% by the Summer. Laughable! Federal spending is not coming down. It will continue to fuel inflation. Annual deficits already exceed $2 trillion/year. Higher interest rates will not slow down the Dollar printing press, but will slow down the economy. With Jay Powell channeling Paul Volcker, and with the lingering economic effects of COVID-19, there will be recession in 2023. COVID-19 itself also will persist, taking a toll on labor force participation. With China re-opening, demand will soon outstrip supply. China’s start-stop-start-stop COVID policy will enhance both global inflation and supply-demand imbalances. As a consequence, globalization will continue running in reverse, adding to volatility. With baby boomers retiring and immigration law reform politically impossible, worker supply in America will be insufficient to meet labor demand. And with almost 25% of Millennials living with their parents, America is entering an era of fundamental economic change that will take years to play out. Wages will continue to rise. Most asset prices, however, will fall, especially during the first half of 2023. Growth will take years to recover.
What will happen in American politics? Among other things, the Supreme Court will abandon two centuries of precedent in Moore v. Harper, ruling that State courts are Constitutionally forbidden to overrule State legislatures on certain issues impacting Federal elections (the so-called “Independent State Legislature Theory”), setting up a politically supercharged 2024 Presidential Election. Extremists of the right and the left will go all out in a populist media frenzy, but will find that America’s Congress has not forgotten bipartisanship.
Investing in 2023 will be perilous. TINA (“There Is No Alternative” to investing in equities, an enormous success story over the last dozen years) is dead (as you, Mr. Realist, observed last January). In a time of fundamental change (and declining profits), capital preservation is the appropriate mantra …, yet America’s media pundits repeatedly preach “it’s not possible to time the markets” – but of course it is – and “index funds are always the best way to invest” – which is untrue. Treasury securities, gold and silver will be a haven from 2023’s financial storms. Even so, America’s stock market will end 2023 only slightly lower than it is today.
Although I have been able to address only a sliver of the 2023 future, your readers should be made aware that the next President of the United States will be neither Joe Biden nor Donald Trump. More on that at a later date.
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Finally (from a good friend)