November 17, 2023
The UK Office for Budget Responsibility (OBR) has said the economy is in recession, predicting the economy to contract by 1.4% in 2023 after 4.2% growth this year. The OBR sees average inflation at 9.1% this year, falling to 7.4% in 2023.
So much for “transitory” inflation and economic growth speeches! It’s time to get real.
Fact: Inflation is global.
Fact: Sovereign currencies are deflating.
Fact: Stagflation is a killer of equity market prices.
Fact: 2023 is taking shape to be a year of worldwide austerity programs.
The next four to six months will be tough for equity investors as corporate earnings disappoint. Employment cutbacks that have begun will continue to be problematic for workers. Housing prices and retail sales will suffer.
As investors are always pricing assets six to nine months out, I suspect that equity prices will begin to improve around the end of the 1Q2023. In the interim, investors ought to be considering (1) hard assets priced in US Dollars, (2) income securities, and (3) the safety of cash.