The Big Picture

Global Consumerism will have a tough year in 2023.

Hey Guys,

Never before has the macro picture of the world mattered so much. A war, a major consumer lockdown, a pandemic and unrivaled inflation on the back of a Fed that has over-done its QE powers.

Global investors are digesting the April inflation reading from the U.S., which showed the consumer price index surged 8.3% in April as compared with a year ago. The inflation rate was higher than expected and still running close to a 40-year high of 8.5%. I’m not sure we did see peak inflation personally, what do you think?

China has signaled in recent weeks that it still wants to meet its growth target of 5.5% this year, even as lockdowns and other restrictions take a toll on businesses. This is seriously ridiculous, and if we were already skeptical of Chinese numbers, their unemployment is not a fantasy. Neither are the unprecedented weakness of small businesses in the United States.

Shopify’s stock is down 73% YTD and it’s the augmenter of small businesses and indie E-commerce. What can we understand from this big picture forest outlook? Perhaps that a recession isn’t likely, it’s nearly a certainty in an uncertain world of supply-chain disruption and a pandemic that isn’t disappearing anytime soon.

China is likely to rack up more debt as it tries to meet its growth targets, according to market watchers. Even as inflation in May, may be actually worse than it was in April, 2022. The Fed wasn’t even that aggressive with raising interest rates, which only prolongs the disaster. Bitcoin’s collapse this week is hurting investors and many who temporarily thought they made it big in 2020.

We can realistically expect in 2023:

• Food shortages

• More environmental disasters than ever before

• Supply-chain dislocation

• A global pandemic that leads to significant healthcare ER shutdowns

• Persistent (the opposite of transitory) inflation

• Interest rates and bond rates that forecast a bleak equity market

• Cash that becomes significantly less valuable over a generation

• More consumers being priced out of their communities in a housing affordability crisis

• The possibility of an escalating war between NATO and Russia, with even China getting involved once their “lockdowns” end, if they do at all in 2022.

I don’t think March, 2022 was peak inflation. Even if the April reading, which represented a slight ease from March’s peak, was also above the Dow Jones estimate for a 8.1% gain. It could get worse still.

The central bank will also begin selling off $47.5 billion worth of its securities each month, starting in June, 2022. But half a percent of interest rates is not going to move the needle, not in this complex macro world. We are in for quite a spectacular year in 2023, and we should be on edge. The anticipation of it is like witnessing the death of the lower Middle class in America and a deep recession in Europe, China and others parts of the world. This could invariably lead to significant social unrest and changes like we have seen this year in places like Sri Lanka, Ukraine and parts of South America.

I think in Mid 2022 it’s safe to say that the Federal Reserve is losing in its struggle against inflation, and the dismal performance of stocks is predicting a different world in 2023. The Fed’s QE has allowed us to live in a dream world of fiscal and monetary manipulation so cross as to be the end of the Bull market of 2009, also somewhat artificially created and unprecedented for BigTech stocks. P/E ratios led us to a very unhealthy bubble and a Bitcoin that reached well over $60,000. That was not a healthy world at all, because it wasn’t a real depiction of the new normal.

The new normal of a U.S. sanctioning Russia and a China that is dislocated in its own ideology of zero-covid policy, is a very poor indicator of a healthy global consumerism moving forwards. Arming and weaponizing the enemy of your enemies is not a good strategy for global stability. This also enrages dictatorships and charges powers into their own paranoid corners. In a nuclear armed geopolitical conflict, this is not a good strategy for economic growth.

The prospects of young people in American Capitalism is bleak. Really very bleak that they could ever afford to own a home. Student debt hit another all-time high in the first quarter of 2022, reaching $1.59 trillion, according to data released by the Federal Reserve Bank of New York on Tuesday.

This debt category accounts for just over 10% of total household debt, which is nearing a whopping $16 trillion. This is the second-largest category of consumer debt, behind home mortgages. The household debt to income and paycheck to paycheck percentage of Americans is really high, they can’t afford to channel this level of inflation for this long. The crisis of leadership in America, from abortion to freedom of expression online is very high.

The inflation numbers of April, 2022 are not a good look:

• The consumer price index accelerated 8.3% in April, more than the 8.1% estimate and near the highest level in more than 40 years.

• Core CPI, which excludes food and energy, also was higher than expected, rising 6.2%.

• Shelter costs, which comprise about one-third of the CPI, rose at their fastest pace since 1991.

• Inflation-adjusted earnings continued to decline for workers, falling 2.6% over the past year due to the surging cost of living.

The real-estate and equity bubble really hurt Americans on the bottom 50% of the spectrum, and they are the most likely to exhibit signs of social unrest. A bad 2023 will embolden calls for change in he 2024 elections, which could tip America as an Empire in decline into some dangerous social unrest. Politicians are always blamed for the economy, even when it’s actually the Fed. The Fed’s QE in retrospect does not look very smart, but they did what they always do, they overshot.

For many Americans, student debt has become a barrier to achieving financial prosperity and life goals. 81% of people with student loans say that student loan payments have forced them to delay key life milestones, such as saving for retirement or buying a home. America has failed its young people and women in recent years, as the Abortion issue mirrors well.

The big picture is showing that American Capitalism continues to fail more and more of its citizens. A breaking point is reached eventually if not in 2023, when?

China’s zero-Covid restrictions have hit businesses hard. Nearly 60% of European businesses in the country said they were cutting 2022 revenue projections as a result of Covid controls, according to a survey late last month by the EU Chamber of Commerce in China. The Ukraine War and Russian sanctions hurt ultimately Europe’s GDP the most. American inflation is the trigger of a global recession where China and Europe are already ultimately very vulnerable.

The Great Recession of 2023 will mar the hopes of GenZ, much in the same way 2008 hit Millennials very hard. For Millennials this will be two major recessions they will experience. The outcome will impact their freedom and retirement to be sure. I just thought I’d state the obvious. A lower quality of Capitalism and consumer capitalism in particular will lead to more social unrest. When things don’t go well in China or America, the whole world suffers economically speaking.

The cost of the Fed’s aggressive QE which protected the rich, will be very high on all of us who are not the wealthy. It also permanently degrades wealth equality and the distribution of wealth in America. The compound effect of this could be the breaking of American Capitalism in the years ahead.

How do you see 2023 and the chances of a global recession playing out? How do you see the future of equities, food security and inflation around the world? How do you see the pandemic and the war playing out in the months and years ahead?

Thanks for reading!