As an old friend in the business used to say, come January 2nd the tide comes in and washes away last year’s performance and you start all over again. With that as backdrop, get ready for that final wave to come in.
This piece, a review of the 'year that was' versus the predictions and observations I've made, as well as the new list for 2025, are my absolute favorites of the year. They require a lot of thought, a lot of acknowledgements of the wins, and a taking of the losses in a very honest way. Out of 20 last year, I walked off with 16 wins, 2 losses, and 2 ‘pushes’. I welcome your thoughts of the intellectual and technical kind. I live a life framed by the Gaussian curve and know what it’s like to reside on both sides of the tail. A record that even Ted Williams might tip his cap to.
I pen these pieces as Editor at Large for Axxcess Wealth. And in doing so, I bring to the table almost a quarter century of experience in and out of markets. Over that time, there have been huge ups like the dotcom bubble and the current infatuation with artifical intelligence. As well as some 'looking into the abyss' downs, like the Global Financial Crisis and Covid pandemic. It's always been a meaningful chase down the intellectual rabbit hole of the economy and markets. Thank you for joining me once again. I welcome your thoughts of the bold and curious kind.
I live my life framed by the Gaussian curve and know what it's like to reside on both ends of the tails. Keep that in mind as you read along and join in for what I hope feeds the chase in all of us. Let left tails and right tails permeate life, not only in markets and the economy. May we live on the positive side of the curve, for as long as we possibly can.
Prediction: In my previous life as a manger of other people's money, I was trained in hedging and wired to be a skeptical bull. With that as backdrop, I would be inclined to say the best is over for stocks. But that would probably mean I have once again fallen trap and anchored myself to my mind's bias that there is no way this run can go on forever. At this point, it feels like it almost can. Will the last bear please turn out the lights?
Bottom line, if the Federal Reserve is going to be cutting rates by summer, get yourself long. Keep in mind, the garbage performance for the S&P from late 2007 through the spring of 2009 correlates to the Global Financial Crisis, and the end of the great debt super cycle. No rate cut was going to save the market from that.
How it played out: The Federal Reserve wound up cutting rates; you should have been long. Big win as the S&P 500 handed you a 25% increase on your money.
Prediction: Jerry and the Powletts are dogs of the Pavlovian kind, and they love chasing hawks when the bell rings. CPI is going to stay in retreat, and by June the Fed Funds Rate is probably going to be toting a four handle.
How it played out: While I was off by two months, it was only a month. By no means was I in the majority when the cuts came. That said, confidence enough to call it at the start of the year is for sure style points.
Prediction: It will be another good year for the hedge fund complex. There will be easy money made early, and then maybe managers will have to earn it come fall. But it’s going to be tough to put up a negative year given the tailwinds to the economy and markets.
How it played out: I should have said it’s going to be an ‘extremely’ tough year to put up a negative number. The raging bull paid a lot of people, a lot of money. This was the third quarter on its own, probably the most pedestrian of them all.
Prediction: The ‘bigs’ in the hedge fund business, are only going to get bigger.
How it played out: I almost feel bad for making this one. It’s almost like saying that with certainty the sun will rise in the east and set in the west. But a win is a win.
Prediction: Residential real estate, and the bubble that ZIRP (Zero Interest Rate Policy) created, is living rent free in my head right now. And will probably be there until the day I take my very own dirt nap. I sold a place that I couldn’t sell in the hills of Montecito for $2.1 million in 2018, listed thrice. It sold for $4.5 million in 2022…sight unseen from a cash buyer who lived in Minnesota. Half the trades going down are done with cash. Doesn’t matter what interest rates are. Good job guys and gals at the Fed, way to fail to ‘read the room’ as they say.
How it played out: Still living rent free, with permits to add on. Baseline going into COVID was 200, whatever that was. Current pricing, 360. Let’s add a couple of zeros here. A home bought or sold in 2019 went for $2,000,000. Same house today would trade at $3,600,000. But don’t worry, inflation is totally under control. Real estate will not go back to ‘normal’ in my lifetime.
A secondary challenge, which is becoming a primary challenge, is the cost to carry a house. Asset price increases are great, but on a primary residence there is still the monthly cost to carry a home. That’s doubled in the past four years. There is no such thing as a free lunch. More on this in the predictions for the coming year.
Prediction: Long terms (whole of 2024) average for WTI crude of $90 stays intact. This year’s range for West Texas Intermediate (WTI) is going to be slightly lower at $70.00 to $85.00.
How it played out: Walk off!
Prediction: (Follow on to the call that 2023 was the bottom for AARK) I’m having a tough time seeing risk going on an all-year bender, but what does that even mean these days? What I do know however, is that Cathie parlayed the self-appointed “Queen of Innovation” crown into a brand of material consequence.
How it played out: While not a direct prediction that AARK was going to get back to momentum days of old, it certainly was an acknowledgement that the worst was over for the ‘mo trade’. Give me a push as the ETF traded $45.00 to $50.00 up until a month ago.
Prediction: I don’t get the sense, and most others on Wall Street don’t either these days, that a big economic contraction is on the way. If it comes through that way, earnings are most likely going to see a modest rise in 2024, and a rather robust jump in 2025. At some point soon, maybe even now, the market will start looking out 12 to 18 months and the P/E on the S&P 500 is going to start looking reasonable. Beware those that say we are in a valuation bubble.
How it played out: Said economic contraction didn’t come. It will be a solid year for earnings growth of 9%. And that bump I mentioned, is looking more and more like it’s going to manifest itself into a real thing. Assuming 15% growth is a real ‘bum’. More points on the board.
As has been very well pointed out, the seven stocks that many find magnificent are doing the lion’s share of the work in both the outsized performance of the S&P 500 as well as carrying overall earnings. This situation moderates in 2025, but the trend remains.
Prediction: Amazon, Apple, Microsoft, and Google are so heavily weighted in the indexes that you can’t both say that it should be a good year for the S&P 500 and Nasdaq, and then say this mega cap tech rally is over. That simply doesn’t exist. As the late Charlie Munger said, don’t try to pick up nickels in front of a freight train.
How it played out: Again, and almost embarrassingly easy prediction. Yes, the equity market was on a good path, to a good year. If that’s the case ‘big tech’ was going to be the lead horses in the race.
Prediction: You are going to continue to hear a tremendous amount about how inflation has been brought under control, and that all is good. The Federal Reserve will be given great credit for bringing in the big fish, a la Ben Gardner in Jaws. But that ain’t nothing. Somebody is going to need to hire Quint to kill it. This sucker is too big, too old, and too smart. ‘Bad fish’, as the Captain said.’
How it played out: The CPI chart below means both everything, and nothing. The everything side of the equation is that the Federal Reserve relies on it as a guide for inflation and whether it’s going up, down, sideways, or any combination thereof.
It means nothing because it’s become unrelatable to pretty much every strata of the socioeconomic pyramid. Inflation is ubiquitous, and it comes in many shapes and sizes. I have no clue how you create a ‘new’ CPI, but I know the current one is the radar the Fed has used to drive ZIRP into the side of the mountain.
Prediction: I officially give up. Semiconductors are the Teflon trade. With AI as the new hip kids’ theme and I can’t see any reason to not think this will again be their year. Trees grow to the sky, right?
How it played out: While it didn’t happen in a straight line, semis had a very good year. The SMH (Semi Index ETF) was never negative for the year and was up at much as 40% and should finish up around 20%.
Prediction: Once these trends start, (the bear market in Wokeism) they are tough to stop. If that’s the case this time, looks like ESG is about to go through its very own long winter of discontent.
How it played out: I was soooo close to the trade of the year and that would have been a complete, all in, short of Wokeism. Not that I’m MAGA or loved the Kamala. But there were hints that the Golden Age of its application on Wall Street was coming to an end. I had zero idea it was the beginning of the end for the modern Woke movement. It’s a whole new ballgame now. Scoreboard!
Prediction: It’s tough to think that this time will be different, and we won’t slow into recession. But there simply isn’t anything out there that says it’s on the horizon. That said, I’m going to channel my young inner Luke Skywalker and try to feel the Force again.
At some point in the first half of the year, unemployment will start to rise. And when it does, the markets are probably going to do quite well. Because at that point, the Fed will be in full rate cut mode. And the next bubble will be born. Which one this time? Maybe AI, or perhaps real estate really gets out of hand. Regardless, we will have survived and been made whole again.
How it played out: Walk off grand slam.
One run…
Two runs…
Three runs…
Run four…
Gibby, meet Freddie. Freddie, meet Me
Prediction: There are inflationary problems all over the globe now. But unless high prices for everything can manifest themselves into behavioral change in how economic participants operate, then nothing will change, and the ‘soft landing’ will be upon us. Whatever that looks like.
How it played out: If you use the indicators of old, a soft landing has been achieved and Powell’s face is next up on the central bank version of Mount Rushmore.
Prediction: The psilocybin Genie is now out of the bottle, and there is no putting it back in. And I really like the more measured approach California is taking on legalization of psylocibin. This is the chance to put some guardrails up and make sure that when it does become legal, it’s credible. You open the floodgates now, the unwashed masses are going to be chomping down psychedelic fungi like you can’t imagine, and that will dilute down the genuine medical benefits that will change lives.
How it played out? As predicted. Do yourself a massive favor, disregard the phrase ‘psychedelics’ in the conversation about psilocybin, as much as you should disregard ‘benzos’ as it relates to anti-anxiety pills. Neither do anything to describe how the drugs work. The latter is really bad. The former is going to be a multiple more important to treating issues of mental health than marijuana.
Prediction: I’m giving up on the boys from New Amsterdam (Mets as the previous pick) but holding onto the Bronx Bombers, pairing them up with the Los AngelesTrolley Dodgers. Huge payrolls. Huge names on the marquee. And all the pressure that goes along with it. Let’s gooooo….
How it played out: The San Diego Padres almost got in my predictive way, threatening to take down the Dodgers in the National League playoffs, but they didn’t. And the rest is the stuff of legend. While I didn’t call the Dodgers as winning the whole thing, calling the two teams that would wind up in the World Series, in January, is not an easy thing to pull off.
Prediction: First off full disclosure, I really liked the show (Yellowstone). While there was a ton of suspension of disbelief, the writers did a great job of creating very directionally accurate plots and storylines based around an ever-changing Montana, and the west. What was portrayed has been happening all over the (406), just without all the trips to the ‘train station’. Ironically, that’s where the show is going.
How it played out: Yellowstone finished its final season with Governor John Dutton (Kevin Costner) killed off in the first episode. After that, it never got solid traction. It was a meandering run through trying to find out who killed him, getting revenge for said killing, winding down ranch operations, and selling the whole thing to the Native Americans at a cost price to the Dutton’s of $1 per acre. That’s a lot to absorb. It ended the way I predicted, a ratings trip to the ‘train station’.
This needs greater context going in, going back two years.
Prediction for 2023: The 2024 Presidential Election will begin to come into focus. Joe Biden just clocked 80 years on this earth, and he will bow out as another fight with DJT would be ugly. Republicans are looking better this time around. But if Trump gets some momentum, and he very well could, it’s going get ‘fugly’. This I promise you.
Prediction for 2024: I’m not kidding when I say Fugly City. You have no idea how bad this is going to get. I mean to the core of the country and Democracy. There is simply too much out there in terms of material against Trump, that clearly many Americans are putting aside, for it not to be one of the most divisive moments in our history. Lots of hyperbole in there. Enough to make Bill Walton blush.
Final tally, a very old Joe Biden wins narrowly. And we then endure a painful four years of watching him fade into the sunset of his life. Just remember, they skewered Reagan when he showed signs of slipping late in his second term, and he was ten years younger than Biden will be. America, with certainty, we can do better.
How it played out: I get the ‘L’ because I picked Biden in a close one. It wasn’t even Biden, and it wasn’t even close. That said, there is a lot in there that was signal masked by noise in terms of what was going to happen.
Disclosure: I am certainly not MAGA, and nobody would call me a ‘lefty’. Put me down Country First, and all that goes with it. And right now, I’m beyond disappointed. If half the stuff that is coming out about Joe Joe’s inner circle, and how the truth about his mental acuity was subverted by self-serving agents, then it’s ‘what did they know, and when do they know it’ time for all of them. As it should be. This is my America too, and we all deserved to know the truth. Which I guess is what happened. Just too late for the Democrats, but probably not our country.
Prediction: I’m anchoring my fat ass to this trade (getting back to 180 lbs) and look forward to reporting the new and improved ‘dad bod’ come this time next year. High school fighting weight, here I come. For myself, and my little buckaroos. Giddy up!
How it played out: By no means was this what happened as I didn’t get sub two handle all year. In fact, I maxed out with a number that included a two, four and zero. If that isn’t ‘maximum density’. The good news, unless I screw this up entirely, the left tail has been reached and we are moving towards the center of the Gaussian curve. Not right tail yet by any means, but for sure out of the two sigma bad side.
This was me later in 2024, on the field after a win by the UC Davis Aggies. Number 31 is an end rusher who is not afraid to punch well above his listed weight. It was a good run to the semis this year, and next season will be here before you know it. I’ll see you in Bozeman next November, Sammy. Bronco Taco after the game.
