Dear friends
A belated Happy New Year and best wishes for health and happiness, prosperity and patience!
In December, the Federal Reserve raised interest rates again by 0.5% to 4.5% and Chairman Jerome Powell reiterated his plans to “raise and hold” rates into next year. With recent signs of slowing inflation, investors now appear to expect 5% as the peak rate in 2023 and some are even betting on a rate cut in the second half of the year.
The European Central Bank raised interest rates by 0.5% to 2.5%, equally signaling that more “significant” hikes are on the way.
Meanwhile, the Bank of England raised their rates by 0.5% to 3.50% and continued to support the economy with fresh money.
The weakening dollar boosted the pound, and the Japanese yen also traded stronger after the Bank of Japan announced a revision of their monetary policy in a more hawkish commentary.
After 20 years of 0% interest rates, the bank of Japan has now “shockingly” raised rates to 0.5%. Although inflation remained comparatively low at 3.7%, they apparently wanted to curb inflation before it got out of control.
At the same time, China was hit by a vicious resurgence of Covid-19 infections after the government abandoned its unsuccessful zero Covid policy. Although China is notoriously secretive about exact figures, estimates put the number of infected people as high as 100 million. Further disruptions in the economy and persistent supply chain shortages have caused exports to plummet by nearly 10%. The road to recovery will likely remain bumpy for China.
The markets closed the month mostly in the red with the Nasdaq at -8.7%, the S&P 500 at -5.9%, 20-year bonds at -2.9%, gold at 2.9%, and Bitcoin at -3.6%.
Our strategies outperformed the benchmarks, but still had another bumpy month with
Universal -0.7%, Progressive -1.2%, and CryptoMax -3.5%.
2022 was a humbling experience for most investors and a real “crash course” on risk management for anyone in the race with leveraged positions.
The rapid surge in interest rates in the US, an uncertain geopolitical situation and ongoing scandals in the crypto space created a perfect storm that sent all asset classes down simultaneously. There was no place to hide, even gold as a traditional hedge was in the red.
The textbook “safe” portfolio with 50% bonds / 40% equities / 10% gold and quarterly rebalancing experienced twice the usual volatility in 2022 and closed at -29%, the largest annual loss in the last 60 years. The only other double-digit loss in recent history was in 2001 with -12%.
If you’re mourning your losses right now, you should follow Elon Musk’s example. In 2022, his Tesla shares fell over 65%, even slightly more than Bitcoin. And after his recent Twitter acquisition, he had a tough time running yet another company.
On the other hand, he also set two world records in 2022: his company SpaceX managed to successfully launch 61 rockets into space, and at the same time he became the first person in history to lose $200 billion of his net worth in a single year!
But even after losing almost 60% of his fortune, he continues to make stupid jokes on Twitter….
You can’t always win, but as long as you survive until the next day, you can stay in the game. If you stick to a system, avoid leverage and properly manage risks, opportunities will keep coming.
Stay happy, healthy and wealthy!
Omar