Forgive me for having taken last week off, but heck, contrary to wide perception, even us Sabbatarians are subject to the Christmas Spirit.
But now it’s New Years. The ball has dropped. 23 is taillights, having reasserted, yet again, GOAT status.
There is from time to time some debate around this. In roundball, one hears arguments for a couple of 33s (Abdul Jabbar and Bird), a 32 (Magic), a 13 (Wilt), and a few for LeBron (who has rotated between 23 and 6 – plausible candidate Bill Russell’s number — over the course of his long career).
But the overwhelming consensus tilts, justifiably I believe, towards His Airness.
And, while still too early to officially declare, I think, in terms of market years, ’23 has staked its own claim to GOAT immortality. Certainly, it beats ’33, a year which, among other things, featured the ascendancy of Hitler to the Chancellorship of Germany. FDR was elected in ’32, which I view as a mixed blessing. But I doubt too many active at that time would wish to relive the experience. ‘6 sewed the seeds for the Great Financial Crash and ’13, while certainly a favorably memorable year, in which both the Dow and the 500 outperformed 2023, we should remember that a) the Naz underperformed; and b) the rally was strongly abetted by massive QE at the long end of the curve and ZIRP at the short portion.
Both, at least according to textbook economics, were/are unsustainable.
Fed Balance Sheet: Fed Funds Rate:
Some consideration is also owing to 99/’99, which, from a hoops perspective is owned by that gentle, bespectacled giant — George Mikan, who dominated the largely unnoticed NBA in the ‘50s. In the markets, our equity indices were enjoying the final morsels of the dot.com bubble. Gen Dow and the G- 500 both rose 20%, while Col Naz (at that point a lowly Lieutenant) surged 32%.
Well, wouldn’t you know it, but while the Dow trailed ’13 nominally (+13.3%), the Gallant 500 excelled it — putting up ~24%, while Col Naz posterized the field at ~43% (for the snobby among you, the more exclusive NASDAQ 100 gained 54%).
Raise your hand if it had occurred to you that this past year’s Naz had achieved a buying threshold that is fully 1/3rd greater than the acknowledged speculative frenzy that characterized ’99.
So, ’23 stands out even among the greatest of its peers, particularly in the fourth quarter, where his Airness was known to perform his most spectacular feats. The Dow was down up until late October; the SPX up modest single digits. Both have crushed it since. And, migrating beyond the Equity Complex,Treasuries have surged an astonishing (for them) 6% over this time frame, with Madame X contemporaneously lowering her yield skirts an amazing 1.2%. Investment Grade and High Yield Credit both manifested double-digit rallies. Crude Oil dropped by low teens percentage points, and USDJPYshed an improbable 12 handles.
Thus, if one held a (admittedly reverse engineered) portfolio of 50% Madame X and 50% Col Naz, returns of 25% or greater were there for the taking. If, in addition, this portfolio was short Crude Oil and USDJPY, well… …let’s not get carried away here.
It also bears mention that these cross-asset-class miracles came against the backdrop of aggressive (though now-suspended) rate hikes, and a Fed Balance Sheet reduction exceeding $1T. Going into the year, these contingencies were thought to be problematic, but, as the autumn of ’23 emerged and faded away, nothing could stop the mighty cross asset class buying machine.
One final point. ‘23 was also a magic number within the hedge fund realms within which I dwell. As recently as Labor Day, the funds I track were throwing off median returns in the negative mid-single digits, and many were facing business risk which, try as they might, they could not ignore. The Airy 4th Quarter bailed them out – big time. Forget the summer gloom; ’23 became a year to celebrate, and even now, many fundsters are pounding on their administrators to issue final return numbers, to be prominently featured in the slew of self-congratulatory “Year in Review” investor letters which will assault our inboxes before we know it.
Thus, whatever ’23 lacked in sheer pricing oomph, it more than made up for with high-drama, late year flourish.
But now it’s on to 24/’24, a hoops number worn by Mamba in the second half of his career, as well as by Spenser Haywood and a couple of my Chi-town faves: the underappreciated Mark Aguirre and Bill Cartwright. None of these dudes were Michael, but a Michael rows his boat ashore maybe once a generation, and each of the others had a successful and storied career.
In the markets, though I can’t be bothered to look up the actual numbers, a year like ’23 is typically followed by a strong, if perhaps less astonishing performance. Sort of like Mamba inheriting the mantle from Michael, and coming close, but neither reaching nor exceeding the exploits of his mentor.
We enter the proceedings with a couple of nits to trouble us. The Fed’s Reverse Repo machine was rattling and smoking in the waning days of last year, suggesting the merest hint of a liquidity problem on the horizon. Around Friday’s European close, somebody was buying the sh!t out of Vixen VIX, but it only lasted about an hour, and she closed the day at proximate 5-year lows. I read in yesterday’s Journal that56% of the 2.8M jobs created in ’23 were in the government/service sector. Which is OK I guess, but not likely to offer much of an assist in our efforts to fend off global economic hegemony threats from China.
The momentum is certainly on the side of risk assets, but as I have urged more than once, I think it pays to proceed with caution as the just born solar cycle unfolds.
More than any other factor, I believe that politics will drive the ’24 action, and if so, there are confusing crosswinds to consider. On the plus side, the odds are that the key drivers of policy, will, at minimum, do all in their considerable powers to insure against an undignified market collapse. They’ll continue manipulate the energy markets to benign ranges, particularly during the summer, so as not to annoy voters who have yet to shed their gas-powered jalopies in favor of bicycles and EVs. The Fed has now telegraphed, at minimum, a willingness to actually cut rates. These and other tools in their arsenal deeply reduce (but do not eliminate) the probability of an all-out rout.
Conversely, we’re entering an election cycle featuring two deeply unpopular presumptive nominees, one of which is under Rodman-like 91 indictments and has (extra-constitutionally, I believe) been removed from the ballots of two states and counting. The other is fading mentally and physically before our eyes. His son is also facing criminal charges, with plausible filial links apparent to anyone who cares to look. This has been downplayed, but I think it’s serious. Though I hate to play the “what about” game, try to objectively imagine a scenario where Trump Jr. had demonstrably failed to pay taxes, where he freely and lucratively interacted with foreign leaders and corporate titans, with uncles and siblings cashing in, and with visual evidence that his father had been present at some of these sessions. His political opposite numbers would lose their minds and throw the whole legal system into the mix.
So, Biden could very well be impeached. Which won’t be good. They won’t convict him, but I shudder to think of what emerges from the process.
And, under the heading of Wishful Thinking, I believe there is every possibility that either Biden or Trump (or, Ideally, both) departs from the scene ere the big ballot mail-in orgy commences. This willadd an extra dose volatility into a market environment that should be plenty volatile come what may.
Meantime, lest old acquaintance be forgot, allow me to bid one last farewell to ’23, a market year the likes of which we may not experience again for quite a spell.
Because even the great ones fade to black eventually. Jordan “retired” after his first three-peat, though I am convinced he was forced to do so by league officials as a penalty for gambling transgressions.
The Good News? He returned for a second three-peat. The not-so-good? When he laced ‘em up again,he wore the number 45 on his back.
And I don’t think I can wait another 22 years for the type of market performance that blessed us in the year, just completed.
TIMSHEL