For the past seven years in my newsletter, I have made annual “Fearless Predictions.” I also summarize predictions from the investment industry. The last chapter of my book, titled “If I claim to be a wise man…it surely means that I don’t know,” launched my annual prediction exercise, largely to poke fun at the process. If you’re an old rocker you might recognize the lyrics from “Carry On Wayward Son” by Kansas.
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Last year in Grainews, I provided a synopsis of these predictions. They were written around Jan. 1 but appeared in the Feb. 7. issue. This column is being written in mid-December, and while there could be dramatic changes before year-end, the concrete is pretty hard on how it will turn out. For clarification, most of what I write about is based on the U.S. market, with a few Canadian thoughts thrown in. The reason for this is U.S. information is more readily available and the U.S. economy and markets dwarf ours.
Hits
My first prediction every year, and one that has always been correct, is that most predictions will be wrong. What sets 2023 apart is how wrong they were. Mine turned out decent and far better than most, but the financial industry was way off base.
As the calendar turned from 2022 to 2023, almost all economists and market prognosticators predicted a recession would occur in 2023. Many had predicted the same for 2022, which didn’t occur, making them adamant it was imminent in 2023. Wrong.
On the other hand, I predicted no recession. My rationale was simple: recessions usually occur a few years after the interest rate tightening cycle begins, and we were only one year into this cycle. I’m not sure why this simple fact escaped so many. Plus, the U.S. consumer was in good financial shape. The U.S. is experiencing the opposite of a recession, with booming third-quarter GDP (gross domestic product) growth of 5.2 per cent — one of the fastest growth rates in recent history. Canada, on the other hand, is flatlining. While still not technically in recession, our economy experienced almost zero growth in 2023.
With their recession predictions, most analysts also predicted inflation would decline, which was correct, and this would lead to significantly declining interest rates. I also predicted inflation would come down but that interest rates would continue to rise a little further. The Canadian bank rate has gone up by three-quarters of one per cent, while the U.S. Fed funds rate has gone up one per cent over the year.
My boldest prediction was that the S&P 500 would increase 15-20 per cent, while analysts on average were calling for a two per cent decline. At the time of writing the S&P 500 was up 20.3 per cent. The financial pros missed the mark by a mile. If you’re counting, I’m now four for four, with the pros zero for four.
Misses
Where did I miss? My call on oil was slightly off the mark. I predicted a significant recovery in oil, which did occur but didn’t hold. Oil ends the year where it started. Oil inventories remain low, but recession fears leading to price declines continue to permeate the market. The U.S. administration is doing its best to keep oil prices low, despite its supposed environmental storyline. Breaches in sanctions on Iran have allowed more terrorist-supporting Iranian oil onto world markets. The U.S. has also reinstituted efforts to secure Venezuelan oil. Hey, Joe — up here — you know we have a bit of the stuff, eh? And ours is less ethically challenged! Most Americans now feel Keystone XL should have been built.
Also, while public companies are maintaining capex discipline, private companies are pumping hard to take advantage of the pricing. Private companies face less political scrutiny.
My biggest miss, however, was the performance of the TSX. I predicted it would do slightly better than the S&P 500. It is currently up just 4.8 per cent. Adding dividends brings the total return to 8.1 per cent. That’s decent, but well behind the S&P 500.
There was a significant quirk in the U.S. market. Seven companies represent the bulk of the gain: Apple, Microsoft, Amazon, Alphabet, Nvidia, Tesla and Meta are on average up 70 per cent, while the other 493 companies are up a modest five per cent. The TSX performed comparably to the 493 companies.
Over the years my predictions have tended to be better than professional market prognosticators, but 2023 takes the cake for how well things turned out. It is important to note I don’t make many investment decisions around my predictions, knowing they can be erroneous as well. I might be a little more aggressive at times and a little more cautious at times, but overall, with market returns of about 10 per cent per year I simply stay invested and try to do a little better than the market.
