Bill’s Blog | December 15, 2022
Is it just me, or has another year just flown by? In today’s Blog, we will start by reflecting on the BIG trends of 2022, and I will transition to share what I see for 2023 (I do this with humility knowing I will not be 100% right). However, my insights come from listening to dozens of financial experts worldwide and geopolitical pundits and trying to reach a reasonable forecast. Then I will close with some action steps to consider.
So, let us get started on the BIG things of 2022 that have significantly affected us.
- I will start with Russia’s tragic invasion/war against Ukraine. Many experts have stated this war was 100% preventable, and I would agree. As you know, this has been the first significant war on European soil since WW2. The destruction of human life (over 240,000 deaths and counting between soldiers and civilians are horrific! Once a war starts, they are not easy to end, as there are many agendas on both sides. Let us all pray that the war will end in 2023.
- There are growing threats of new wars that accelerated in 2022—the ongoing aggression of China against Taiwan. North Korea’s proliferation of shooting missiles and testing ICBM destabilizes the region. Turkey’s latest aggression against the Kurds in Syria. Unrest in Serbia. Finally, the ongoing war between Iran and Israel. Iran uses its terror organizations in the region to attack Israel constantly, and I foresee this becoming a more significant conflict in the future. There are currently 50 wars going on as I write this, and as we see a growing economic decline, I see this as a catalyst for more turmoil and wars in the coming years. As I have written, we are in a major war cycle (about every 100 years), and humanity sadly repeats these destructive and evil patterns.
- Inflation became deeply entrenched in 2022 (40-year highs), though it started in 2021—overzealous politicians (many were incompetent and had no well-thought-out plan from 2020 to 2022). They were creating trillions of dollars out of thin air and handing out stimi-cheques that allowed consumers to go wild on spending in 2021-2022. Policies like lockdowns were very destructive and inflationary. Over a quarter million businesses went bankrupt in Canada. Few seemed to care how these policies would impact families and children, create severe depression and isolation of the elderly and increase addiction and social abuse, which is very, very tragic! Central banks funded this mess with enormous DEBTS and again with no accountability. Now we all face higher TAXES, and people are demanding higher wages. Guess what this creates? More inflation! Inflation is slightly slowing (disinflation) as we end 2022, but wise individuals/business owners are cutting costs and tightening their belts. Inflation will not be a short-term issue.
- 2022 saw a growing distrust in political leadership and massive protests worldwide. It is not just China or Iran, the Netherlands and the EU; we have seen it in Canada and dozens of other countries. Unfortunately, many Politicians feel it is their right to attack constitutional rights and freedoms, and I am deeply concerned about this heavy-handed approach with no discourse or accountability. But history is repeating as we saw similar trends in the 1930s with the rise of totalitarian governments and the massive chaos that followed. I hope Canadians demand real change and hold politicians accountable. We need leadership that promotes open debate and honest dialogue focusing on the Nation’s best interests, not personal agendas! A free democratic society is an enormous privilege; history has shown us that freedom is fragile and not free.
- We also witnessed a Global energy crisis caused by political agendas and leaders who prevented the critical development of sustainable, reliable and low-cost Energy over the last decade. We have allowed foreign interests, NGOs and non-elected people to dictate our policies. The EU and Britain are complete messes with their energy crisis, with the war accelerating the problems. Also, the sanctions against Russia have been useless. 100s of millions of Europeans are now paying the price for misguided policies.
- We are now witnessing a growing Global food crisis, with nearly 900 million poor people on the verge of complete starvation (up 150 million people in 2022). Guess what western politicians, including our Prime Minister, are now attacking? You guessed it; they want to shut down 1000s of farms and reduce food production significantly. Of course, there is no debate on how this will impact 100s of millions of people or destroy farm businesses.
- The rapid pace of interest rates is taking its toll on over-indebted individuals and companies. Bankrupcies in Canada in 2022 are up 23% for individuals and 34% for businesses. I expect this trend to accelerate in 2023.
- 2022 saw a rapid breakdown between West & East trading partnerships and will ensure inflation in many goods and commodities as supply chains have broken down. Supply chains will take years to resolve fully, with hundreds of billions to bring manufacturing and production home or to safe countries nearby. The breakdown between the USA and the Saudis has enormous implications for the US dollar reserve status. The Saudis will sell their oil to China and other Nations using alternative currencies, forfeiting the 60-year Petro Dollar Agreement. The US dollar will weaken if this trend accelerates.
- The final trend I will mention is the extreme volatility in the markets, bonds, and stocks, and in the second half of the year, real estate began to decline rapidly. We started the year with the worst January in 100 years in the markets and descended into a bear market territory with a few bear market rallies. The crypto market experienced a severe crash, as many companies blew up due to excessive leverage, corruption, or both. The pattern was very similar to the excesses of the late 1990s with the internet bubble and dot.com’s blowup in 2000. Remember, everything works in predictable cycles.
What is next for 2023?
Several trends that began in 2022 will continue in 2023, but I also see several possible divergences develop throughout the year. So, let’s get started.
- The massive debt levels that have grown since the 2008 crisis are staggering. We have reached well over 300 Trillion and proliferating (consumer, business & government debt), and if you add the derivatives, another one to two quadrillions, and yes, you read that right! Many seasoned financial experts are warning of another severe debt crisis and blowup similar to what happened in 2008. With the strong US dollar, rising interest rates and too much debt, I, too, am concerned we may experience another debt crisis in 2023. There are many candidates (EU banks, a sovereign debt crisis, China, and many Emerging Markets) to know who will start the possible meltdown. I have long said, “mitigate debt or best stay out of debt.” When I do my Straight Talk on Debt seminar, I often say, “Debt really does not matter until the day you cannot repay it.” Sadly, that day has come for many Canadians.
- Consequently, expect further bankruptcies in Canada and abroad in 2023.
- Expect another two to three interest rate hikes, as core inflation (Food & Energy) is still very high. Most likely, many Central Banks will pause raising rates in the second or three quarters. There is considerable debate among financial analysts about whether the CBs will reverse course in 2023 and start decreasing interest rates. Wallstreet would love this! I am in the camp; they will pause for a considerable period and not reverse rates unless a massive debt crisis erupts. Inflation will be very sticky but moderate to 4 and 5% in 2023, but this is still high historically and disruptive.
- In my opinion, we must vote out politicians and parties who run massive deficits to tackle high inflation. Currently, politicians are sending Canadians cheques or rebates (peanuts compared to the massive inflation they created), which are not free! We need smaller government, less taxation, and a complete overhaul of our systems. Our country will continue to decline unless we have integral, intelligent, compassionate leaders who value open dialogue and promote enterprise and innovation.
- Thankfully, fuel costs have begun to decline, but that can quickly reverse if we see further geopolitical outbreaks in 2023, especially in the Middle East.
- Many people experienced sizable corrections in their portfolios in 2022, especially if they were in passively managed funds and the typical 60/40 balanced funds or more aggressive equity funds. It was the first time in 100 years that stocks and bonds fell together! We still have not had full-blown contagion in the markets or capitulation (meaning everything goes down fast). I think there is a high probability of this happening in 2023 (the first half of the year).
- Canadian real estate will continue to decline in 2023 in most markets. The big problem will come when fixed-rate mortgages come up for renewal in 2023 and beyond. Also, people with variable mortgages will continue to be under pressure with rising rates, and many will need to sell their homes as they cannot afford the higher payments.
- Avoid the cryptocurrency markets until there is clarity on regulation in the USA and other vital regions. So many large fund companies/banks, billionaires and even pension funds got burned this year. They will not make the same mistake twice, and the BIG money will not return until there are reasonable and transparent regulations. So unless you are a seasoned trader, avoid crypto in 2023! I still see sizable downside risks in the coming year.
- I expect the year to start much like 2022, very volatile and keep your seatbelt fastened. I have warned clients to be very defensive and diversified correctly in 2022, and the same guidance continues in 2023.
- I am almost 100% certain there will be a recession in 2023. The yield curve inversion is steep and a highly accurate recession forecaster. Recession will differ in many regions of the world. Places like China, the EU & Britain will experience a deeper recession based on poor leadership and policy decisions. Will the recession be mild, moderate or severe in North America? Again, this has been up for much debate. I do know with certainty: High-interest rates, high inflation and unsustainable debts equal a slowing economy, lower business revenues and profits, and continued layoffs. Plan accordingly.
- When the Fed (the most influential central bank) pivots (most likely in mid-2023 to early 2024), this will benefit equities and growth stocks like tech for a season. Commodities and gold/silver will experience sizable gains in the New Year and into 2025 and possibly 2026. Even crypto will get a bounce after the pivot.
- I recently listened to an excellent interview with respected portfolio manager Felix Zulauf from Switzerland (50 plus years of experience, and he manages billions of client money). His opening quote is, “The Decade of the Rollercoasters,” and he repeats the quote a couple of times during the interview to make his point. I suggest you and I take his point seriously and be willing to modify our financial plans perhaps multiple times this decade. What has worked in the past will not be effective, as we learned in 2022.
So, what are a few action steps you can consider for 2023?
- Plan to meet with your financial advisors in January to discuss markets and any significant financial decisions. Then, if you need a second opinion, feel free to reach out to another trusted advisor or me.
- If you are in financial trouble, get help. We all need help from time to time, and I encourage you to be proactive. Doing nothing is not a good plan.
- I firmly believe having a knowledgeable, active portfolio manager is superior to passively managed funds, especially in this volatile environment. Explore your options.
- Have a significant position in physical gold and silver as a wealth preservation asset and diversifier. Gold has broken through the $1800 US resistance level, and $2000 is the next target (the all-time high was $2074.77 Aug. 2020). Silver has rapidly surpassed the $24 US price in the last couple of months and $28 in the next significant resistance. The all-time silver high was around $50 US in 2011. I suspect both metals will do very well in 2023. If you need guidance, please contact me, as I specialize in physical gold and silver investments.
- Have a sizable cash position or a cash equivalent like an insurance contract called a GIA (Guaranteed Investment Account) with a good yield. They are liquid, and you can receive up to 4.55% on a one-year open contract.
- Finally, what are the top two or three things you need to take action on in 2023 to improve your financial situation? Write them out, review them, take action and share them with one or two people you trust who will encourage you and hopefully keep you accountable.
If you have not taken my online wealth course, this may be an excellent step in learning and developing or modifying a wealth plan. In addition, I have special Christmas/holiday pricing for my online course, $49 CA.
Please let me know if you have any questions. If you found the Blog insightful and helpful, please pass it on to friends and family. This will be my final Blog for 2022, and I look forward to educating and serving you in 2023.
Have a wonderful Christmas and holiday season.
Bill Westmacott, Owner