Reflection of 2023 and Insights for 2024

Bill’s Blog | January 11, 2024

Firstly, I hope you had a wonderful Christmas and holiday break. Now that we are in 2024, reflecting on the recent past is valuable as it will give us hints as to what will transpire in the New Year. So, let’s take a quick tour of 2023 and look at the significant trends and events, and there were many.

• March 2023 triggered multiple bank failures in the USA and Switzerland. These events were the most significant financial losses in US banking history. Credit Suisse, Switzerland’s second-largest bank, also collapsed. Massive Central Bank interventions bailed out both crises, which have become a far too frequent policy since 2008. This story is not over, as the Fed continues to bail out troubled banks. 
• FTX, one of the largest crypto exchanges in the world, collapsed in late 2022 due to blatant criminal activity by its founder, Sam Bankman-Fried. Sam was justly judged in 2023 after stealing billions of clients’ money and will spend the rest of his life in prison.
• More trouble in crypto land. Binance founder CZ also had to step down due to violating the Bank Secrecy Act; Binance paid a huge fine, and CZ will face charges in 2024. Binance is the largest crypto exchange in the world. 
• Serious criminality and incompetence have become far too common in big financial institutions. Unfortunately, this is nothing new, as history is replete with many criminal actors and investors and depositors pay the price. 
• The Magnificant Seven (Apple, Microsoft, Google, Amazon, Nvidia, Meta and Tesla) will prop up the S&P in 2023, and the seven companies will make up 95% of the gains for the year until the last six weeks. These companies were all a part of the AI craze of 2023.
• The year would end with a large general market rally in the US, and Canada would have modest gains by comparison. The rally was mainly triggered by the Fed jawboning the markets with the possibility of lowering rates in 2024. 
• Here is a quick look at the winners and losers in 2023 by sector. 
• -9% commodity basket
• -2% Bonds
• -5% Real Estate (US), and in Canada, primarily flat and losest sales in 40 years in most markets.
• 0% cash
• 13% for gold and silver flat on the year
• 25% for US stocks
• 55% technology (magnificent seven)
• 116% crypto basket
• 156% Bitcoin, and from the low of March 2023, Bitcoin surged in the year’s second half. I will explain why when we transition to 2024.
• Inflation moderated, but we still faced high inflation on the things that matter: food, housing costs, and significant tax increases. 
• The tragedy of the Russia/Ukraine war continued with massive human lives lost in the hundreds of thousands and over 20 million displaced Ukrainians. Russia will win this war; hopefully, a negotiated settlement will occur in 2024. Putin has an election year and will not want to look weak. The war may drag out into 2025 until there is a significant change in Washington, as the current administration seems to love war!
• A severe second war broke out due to the evil actions of Hamas against Israel with the brutal attack on October 7, which has destabilized the entire Middle East. This war will most likely be a prolonged war that will escalate in 2024. The Iranian regime has funded and trained these terrorist groups (Hamas, Hezbollah, Houthis and many others in Syria and Iraq) with one goal: to destroy Israel, and the USA is their next target. The West needs to wake up, as these are serious threats!
• The Canadian economy significantly lagged behind the USA in 2023, and we have had the lowest capital investment in Canada since the Great Depression of the 1930s! Due to corrupt, incompetent and immoral leaders, Canada is in serious trouble at home and abroad on many fronts. Canada desperately needs integral leadership that knows how to rebuild our economy with well-thought-out plans, encourage business development, less regulation and taxes and stop the endless divisive policies and attacks on Canadian rights and freedoms. 
• Central banks finally ended their rate hike policy (the fastest and most extensive in history) after a couple more hikes that I and others had forecasted. Then, in the last quarter, central bankers began to jawbone the possibility of interest rates dropping sometime in 2024. I will comment on this in the next section.

With 2023 behind us with another volatile year, let us consider what may transpire in 2024 and possible action steps.

• January is often a good indicator or harbinger (not 100% accurate, maybe 80%) of how the stock markets will play out the remainder of the year. We have started the year with volatility in the markets. 
• Unfortunately, I do see 2024 as having continued volatility for many reasons. Let’s look at what will have the most significant impacts in 2024. Then, I will transition to possible solutions for 2024.
• The US election reality show will soon dominate the media, which I will avoid like a plague. Biden has the lowest presidential rating in US history for many good reasons. The Democrats will do everything in their power to prop up the markets and provide endless trillion-dollar promises which America cannot afford. The divisions in America are very real around this election, and I hope things do not get out of hand as we have seen in recent US history.
• Unfortunately, I do foresee the risk of more war expansion in 2024. Potential hot spots will include the Korean Peninsula, China/Taiwan/USA, the Middle East with Israel and the US confronting the terrorist Iranian regime, Russia/Ukraine and about a half dozen other regional conflicts.
• There are currently 70 developing countries with serious debt issues. We will likely see several sovereign debt defaults in 2024.
• Central banks will not be able to eradicate inflation as long as governments run massive deficits and continue to raise taxes. All these bad policies are highly inflationary.
• We have had a bond yield curve inversion for 12 months now (this is where short-term interest rates are higher than long-term bond rates), and it is one of the most reliable recession forecasters economists follow. I believe that in 2024, we will be in a full recession, and only time will tell how bad it will be. 
• There will be an attempt to reduce rates in the Spring to mid-year. Lowing rates will signal that a recession has taken hold and negatively impact stock and bond returns and the general economy. Our Canadian central bank will move first because Canada has a far worse financial situation than the US. 
• The EU and manufacturing powerhouse Germany are already in recession, Britain and Japan’s economies have seriously stalled, and China has significant real estate and debt issues. China will not be able to save the global economy as it did after the 2008 GFC. 
• Eventually, governments will implement massive fiscal stimulus, and central banks will turn on the money machine QE, which will cause the next inflation surge. Rates will again go much higher and cause further economic pain (most likely in 2025 and beyond).
• Only 30% of Canadians are debt-free. Debt has become a severe problem in Canada. Many Canadians carrying large mortgages, LOCs, and credit card balances will get in trouble as the economy slows further and people lose their jobs. Banks and lenders will take sizable losses. The banks are already building up reserves for the anticipated loan losses.
• Canada only produced 100 new jobs in December, compared to the US 217,000. 
•  Canadian real estate will continue struggling due to unaffordability and reckless government policies over the last decade. In BC, significant changes are coming to city neighbourhoods (50 cities) as the Provincial government has passed a law that a landowner can put up a four/six-plex/apartment with no recourse from the city or the neighbours (June 2024). Of course, there was no consultation with cities or citizens (how this will impact neighbourhoods, budgets of cities with infrastructure costs, roads, parking issues, and electrical grid issues, to name a few). I foresee big problems from this policy and little impact on the housing crisis (affordability and shortages). Expect hefty property tax rises as this plays out in the coming years. 
• Enough of the depressing stuff, but take these risks seriously, as many challenges will play out in 2024 and beyond.

Solutions for 2024:

• For those willing to take higher risks, consider taking a position in Bitcoin and a few other select altcoins after proper due diligence. I strongly advise you never to borrow money to invest in crypto as it is too volatile. For full disclosure, I started to build a position in a select portfolio using cash in December 2023. I was fortunate to participate in the 2017 and 2021 crypto bull run and did very well, and I am equally excited to see how this next year or two plays out. 2024 will differ from prior bull runs, as we have 11 Bitcoin EFTs approved in the USA. Now that these ETFs are approved (January 10, 2024), substantial institutional money will buy Bitcoin and drive up the price. The second significant event is the Bitcoin halving in April of this year, and this will be the fourth time this has occurred, reducing the miner’s rewards and providing more scarcity to the max 21 million Bitcoin. There are always high risks in investing in cryptocurrencies due to their extreme volatility and understanding of how to protect your assets. As I always teach in building wealth, understand your risks and do your homework before you deploy any capital. 2024 to 2025 has the potential for sizable gains; make sure you have a well-thought-out written plan and be disciplined to act on your plan to take profits. Taking a small position in Bitcoin and a few other Altcoins can diversify your portfolio. 
• Gold did well in 2023 with a 13% return, and if things play out as I forecast, I believe we could have an excellent year for gold. We could see $2200 to $2500. Silver will also rise significantly if this plays out. I strongly recommend building a position in physical gold and silver outside the banking system.
• I recommend having some of your wealth in Life Insurance contacts for several reasons. Life insurance companies are extremely good at managing risk, providing creditor protection in most cases, wealth outside of your estate, and many other great benefits. There are many options and solutions to choose from, depending on what your objectives are.
• Private equity is another way to diversify your wealth. I will be co-hosting a webinar on March 6 with my good friend James Longstreet, where we will be interviewing Canada’s top apartment REIT with a stellar track record. Please consider joining us in March, and I will send details and a Zoom invite sometime in mid-February 2024.
• 2024, again, will require wise portfolio management for those in the stock market. I firmly believe in active portfolio management (rather than passive management) that clearly understands risks, knows what to do and adjusts your portfolio accordingly. If the four-year Presidential Cycle plays out, we should end the year positively in the markets; however, 2024 has many risks, as I have already noted.
• My last recommendation is to minimize debt, review your budget regularly, cut costs as much as possible and build up a savings account or two. If you need help and guidance, please reach out to me.

All the best in 2024,

Bill Westmacott is an educator, life insurance broker and wealth solution provider.