2024 Begins

Happy New Year!

Before we look ahead to this new year, let’s look back at what we all went through in 2023. It was really quite a lot!

January

• China opens borders, ending zero-COVID policy.
• Almost three million people were infected with COVID-19 over the Christmas period
• Microsoft invests $10B into OpenAI, extending their partnership.
• UK Inflation starts the year at 10.5%

February

• Chinese “Spy Balloon” drifts over the Americas.
• The original 4 day Russian invasion of Ukraine has now lasted 365 days.
• Russia suspends participation in nuclear arma reduction treaty.
• The Bank of England raise interest rates from 3.5% to 4%.
• US interest rates rise to 4.75%
• A milder winter across Europe ensures gas reserves do not run out as feared.
• An estimated 475,000 workers go on strike, the single biggest day of industrial action for more than a decade, 

March

• Silicon Valley Bank and other regional US banks collapse causing banking turmoil.
• The Bank of England announces that the UK arm of Silicon Valley Bank is to enter insolvency, following the demise of its US parent, the largest banking collapse since the 2007/8 financial crisis. Many UK tech startups are prevented from accessing cash to pay staff
• UBS buys collapsing Credit Suisse for $3.2B
• BOE base rate rises to 4.25%
• US interest rates reach 5%

April

• Finland named 31st NATO member, which doubles NATO-Russia border.
• Germany closes nuclear plants, ends 50 years of nuclear power.

May

• WHO declares end of COVID-19 global emergency.
• Prince Charles becomes King Charles III.
• The International Monetary Fund upgrades its growth forecast for the UK, which it says will now avoid a recession in 2023
• BOE base rate rises to 4.5%
• US interest rates reach 5.25%

June

• Temperatures reach above 30 °C for the first time since 24 August 2022, marking the hottest day of the year so far.
• Wagner Group begins conflict with Russian military.
• BOE base rate rises to 5.0%
• US interest rates reach 5.5%

July

• Strikes continue in the UK, US and across Europe.
• July is the hottest recorded month for global average surface air temperature.

August

• Hawaiian wildfires burn 17,000 acres, killing over 100.
• BRICS (The economic group – Brazil, Russia, India and China) to add Argentina, Ethiopia, Egypt, Iran, UAE. Saudia Aria to join in 2024.
• BOE base rate rises to 5.25%

September

• Novo Nordisk overtakes LVMH as Europe’s largest company. (We own them both).

October

• Attacks on Israel and the start of the on-going Israel-Hamas war.
• Microsoft closes acquisition of Activision Blizzard, which was previously blocked by the UK competitions and markets authority.

November

• Xi Jinping meets Biden in first US visit since 2017.
• China continue to enter Taiwan airspace with fighters.

December

• COP28 agrees on transition away from fossil fuels. Meanwhile Germany is forced to burn more lignite (the dirtiest of coals) than ever before.
• Shipping firms suspend Red Sea activity after Houthi militants’ attacks.
• The defence of Ukraine continues.
• UK Inflation ends the year at 3.9%
• FTSE100 Index climbs to end the year broadly flat.

I think the selection of events above serves as a good reminder of the obstacles we faced in 2023. I could have chosen so many more. The year was dominated by global conflict, savage inflation and ever rising interest rates. The consensus view by 85% of financial analysts, agreed that both the USA and the UK would fall into recession in 2023.

So what am I thinking about currently?

What’s the thing that people are certain about this year that will be proven wrong?

85% of financial analysts were wrong! This year the concensus is that the 1st quarter will be strong, followed by a mild global recession in the second half of the year. There are many arguments to support these views.

• The lagging effect of rising interest rates. Could interest rates have gone too far and it is already baked in that recession will follow.
• The current valuations of global property versus the debts secured on them. Many of China’s property developers are on the brink of collapse. A high proportion of office property remains empty post pandemic.
• The concentration of investment in The magnificent 7. (Apple, Alphabet, Microsoft, Amazon, Meta, Tesla & Nvidia) Many linked to the current mania for Artificial Intelligence. Together they account for a huge proportion of the US market. The group was valued at $11.7 trillion, about equal to the combined valuation of UK, Japan, and Canada’s stock market.
• Let’s not forget that harbinger of doom – the inverted yield curve.
• And of course the threat of WWIII.

All rational sources of worry.

What is currently priced into the Stockmarket?

All of the above points are well known and already priced into the Stockmarket to some extent. AI would have to turn out to be a useless hype and the US would have to declare war for things to change.

What comes after the so called soft landing?

I blogged about the likelihood of escaping this period of inflation by raising interest rates before. The Goldilocks scenario of just enough to cool, not sufficient to kill economies. The consensus is that in the US at least it has been achieved. Excellent. What comes next? Growth again I would suggest.

Is high inflation over?

Linked to the point above, but energy prices seem to have stopped increasing. This can be seen with the difficulty in maintaining oil prices that OPEC+ led by Saudi Arabia is having. Oil is down to $70 – $75 a barrel, down from a recent peak of $115. The rising cost of energy is a chief cause of inflation as it touches almost everything.

What happens to all the cash sat on the sidelines as interest rates fall?

At some point it all has to come back into the markets in the search for a higher return as the return on cash is gradually taken away once again. This will have a major up-lifting effect on the markets.

Will the weight loss drugs, like Wegovy manufactured by Novo Nordisk change the economy for the better?

Healthier people, lower healthcare costs, a potentially larger work-force, increased morale – the overall effect could be transformational.

What could actually go right in 2024?

Investors, economists and pundits spend a lot of time worrying about risks – recessions, bear markets, black swans, geopolitics, societal collapse – to name just 5.

Few people ever think about what could go right. More things usually go right than wrong, which is how we get progress. Here are some areas for optimism.

Momentum

A body in motion stays in motion. A head of steam will start the next bull market run and once running will continue to run.

Flat over 2 years so far

All bull markets start from a market bottom. It is now 2 years since the markets hit their peak and 15 months since they bottomed. The steam has been slowly building.

No Recession

Where is the much touted recession? Will it ever come? Perhaps the consensus of the second half recession will be wrong like the 2023 recession call was?

Inflation Control

Maybe the biggest contribution AI has to offer is the proliferation of planning tools that have become available. Perhaps inflation has been brought under control like never before due to computing power and experience. Central Banks especially The Federal Reserve seem confident.

Crystal ball gazing

There is little point in making short term projections especially when a consensus of 85% were shown to be dead wrong. So no end of year projections from me I’m afraid.

I don’t know whether optimism will be the case in 2024, but I feel confident this will be the case going forward over the long haul. And the long haul is the timescale of sensible investors.