New Year’s and The Future

By Jeff Kelly on December 30, 2022

“New Year’s Day. A fresh start. A new chapter in life waiting to be written. New questions to be asked, embraced, and loved. Answers to be discovered and then lived in this transformative year of delight and self-discovery. Today carve out a quiet interlude for yourself in which to dream, pen in hand. Only dreams give birth to change.”

Sarah Ban Breathnach

We have been fortunate to have our daughters here for the holidays. It’s been a terrific end to a challenging year. The markets have been difficult (an understatement), we’ve lost loved ones (two and four legged) and the state of our world is precarious to say the least. Spending time with our daughters is a tonic to being pessimistic about our future. It’s easy to see and recite the near-term difficulties we face. Having them here makes it all a little more tolerable and makes me more optimistic. We had a wonderful family dinner last night at a terrific restaurant. We had a chance to poke some fun at my son-in-law, always a treat for a father. And maybe best of all, they picked up the check!!!

In another period of dislocation, the heights of the great depression, John Maynard Keynes, the Economist, wrote an essay “Economic Possibilities for our Grandchildren”. He talks about a life of “abundance”. He lays out the case for technological advances making a much better world. It’s a short read and compelling. He was right. It probably took longer than he imagined.

If Mr. Keynes could write his essay today, I believe he would be right again. Some reasons this can be true.

• Power will become abundant and cheap using Nuclear Energy and other technologies.
• Technological advances will lead to battery solutions that don’t require rare earths or mining of cobalt.
• We will see distributed power grids morph from the old national grids.
• Globalization will turn to Glocalization. There will be no monopoly on success in the future based on location.
• Internet access will become available to everyone at little to no cost.
• This access unleashes learning to anyone with an internet connection.
• We are seeing people revolt against autocratic governments in places like Iran and China.
• Emerging markets now have a chance to emerge. They have come through the past few years in better shape than many developed countries.
• It’s never been cheaper or easier to start a business.
• Poverty rates are at all-time lows, despite what you may read.
• The abdication of leadership by traditional institutions, politicians, corporations, and NGOs will lead to more participation by individuals. Outcomes will improve.
• Food will become more abundant. Technological advances will enhance growing seasons and output.
• Diseases will be cured, and health will be enhanced through biotechnology discoveries and technological optimization.
• We will see the extremes of movements recognized for what they truly represent, an attempt to manipulate and separate us as a people.

None of this happens tomorrow. Tomorrow is New Year’s Eve. I am working on some New Year’s resolutions. I believe 2023 will be a very good year. I see great things ahead and I hope you do too.

CHARTS FROM THE WEEK PASE

The slide below shows the potential drag from fiscal and monetary policy starting to fade in 2023.

The third year of the Presidential Cycle is historically the best.

The worst year for stocks and bonds since 1871.

Existing home sales yucky.

VIX (volatility index) Term structure sees a higher VIX in the coming months.

Egg prices go parabolic.

The yield curve inversion is clear in this chart.

Usually, the curve looks like January 2020 through August of 2021. Very different now.

Real earnings are and have been negative for a while.

Credit Card loans at capital one has risen significantly.

Luxury Goods consumption declines for the first time in a while.

This doesn’t usually turn quickly.

It’s remarkable how a small decline in mortgage rates caused supply of homes to decrease.

Subprime Asset-backed Securities spreads widening and rising subprime auto loan delinquencies also rising.

Zombie Companies rising to a new high.

These are companies who don’t make enough to pay the interest on their debt.

U.S. M2 (Money Supply) growth to zero.

It’s hard for equities to rise in a deflationary monetary environment.

It’s not just the U.S.

South Korean business confidence continues to slow.

The spread between the U.S. 2-year and 10-year treasury bonds at extremes.

Shipping rates from Shanghai in a steep decline.

China is reopening. It should put a floor on these soon.

Quite the move recently in the Japanese Yen.

The Dollar is down 14% against the Yen in a couple weeks. This is a very large move for a currency.

The Dollar index is now well off its highs.

We’ll learn if this is just some retracement after a big run or something larger.

International markets are much cheaper than the U.S.

Another volatility chart.

This one is the S&P 500 realized volatility with a one-month lag to implied volatility. Somewhat ominous.

The gap between the Household Survey (which LEADS at economic turning points) and the Payroll Survey over the 8 months since the Fed started tightening: a cool 2.7m.

WEEKEND HOMEWORK

Never has the saying “the enemy of my enemy is my friend” had more truth than when the US government and the criminal underground joined forces to defeat the Nazi menace. For the first time ever the full story of how Charles “Lucky” Luciano—the U.S. Mafia boss who put the “organized” into organized crime—was recruited by U.S. Naval Intelligence in 1944 to aid the Allied war effort in the U.S. invasion of Sicily, a turning point in WWII.

A gripping history chronicling the fits and starts of American special operations and the ultimate rise of the Navy SEALs from unarmed frogmen to elite, go-anywhere commandos – as told by one of their own.

“Deeply researched, well organized, and incredibly engaging…. This is our legacy with all the warts, the challenges, and the heroics in one concise volume.” (Admiral William H. McRaven, number one New York Times best-selling author and former commander, United States Special Operations Command)

We believe investing in nuclear energy with be a major winner over the next decade. This podcast has some great ideas.

MacroVoices #356 Justin Huhn: Investing in All Thing Nuclear

Erik Townsend and Patrick Ceresna welcome Justin Huhn to MacroVoices. Erik and Justin discuss:

• Overall investment argument for nuclear energy
• Bifurcation of nuclear energy market
• Available options for investing in nuclear
• Strategy for investing in miners
• Invest in the fuel or in the technology?
• Understanding the nuclear fuel cycle and how to invest in it
• Investing in conversion and enrichment

Year end is a terrific time to reach out to someone you haven’t seen in a while. Call a friend or relative. Meet for a coffee, a drink or just shoot the breeze. It’ll feel great and could lead to more human contact in the coming year. We all need that contact more than ever. 2023 can be our best year ever. We need to grab it by the throat from day one. Have a wonderful New Year’s weekend.