Fearless Forecasts: The Year of the Silent Senior 

Here’s something everyone can agree on: 2022 was a bum year. Let’s hope we can take that and run with it.

I mean run with the “agree on” part. Not the “bum year” part. We’re way overdue to have a few things to agree on. Light a candle for the ghost of reasoned, calm discussion.

Once again, in my role as the Aging Boy Oracle of Texas Hill Country, I’ve sought my inner Yoda to see what awaits us in 2023.

Behold… the future!

We’ll have a new mantra for inflation. Beer(ly) living on a champagne budget.

It will be the year of the silent senior.    Long known for not suffering in silence, the nation’s senior citizens will spend a quiet year. We’ll be savoring our 8.7 percent Social Security benefit increase and our Medicare premium decrease, hoping everyone else won’t notice. Play with the numbers all you want, being retired sure beats working.

Cash: It ain’t trash no more. What this means will become clear as the “wealth effect” from 20 years of low interest rates continues evaporating. Expect the bull market in all kinds of “stuff” to soften as people rediscover the joy of cash and the pain of debt. A prime example will be…

The fantasy of owning a car that appreciates will disappear. With the used car price bubble deflating and more price drops coming if Carvana goes belly up, the large portion of households with more at risk in the used car market than in the stock market may be looking at its largest net worth decline in years.

A new cocooning will emerge.  In 2021 we cocooned in our homes because Covid-19 forced us to. In 2023 homeowners will cocoon because they treasure their beautiful, well-seasoned, 4 percent mortgages. One reason to treasure those payments is that some homeowners would not qualify for the house they already live in if it had to be financed with a 6 to 7 percent interest rate mortgage. That’s a forceful reason to stay put.

Two new maladies will be discovered. Neither is a virus. One is “loyalty fatigue.” That’s what we suffer because we can get points or rewards for just about any conceivable purchase but don’t care anymore. The number of those programs vastly exceeds our willingness to be loyal customers.

The other new consumer malady is Streaming Anxiety. That’s the problem of deciding between abundant online streaming sources. Economic psychologists call the problem “overchoice.”

Are these serious maladies?

Not really. Go with the flow.

We’ve got plenty of real things to worry about. Such as…

Recalling the ancient (money) managers. Faced with a market they’ve never experienced (one with yields and dividends large enough to count), a generation of portfolio managers will throw up their hands in despair. After two decades of low interest rates and investing for nothing less than intergalactic disruption, they won’t know what to do. Most of the managers who have experienced actual yields on stocks and bonds are long gone. They’re either sipping daiquiris in the Caribbean or playing a harp in the heaven of Realized Capital Gains. The coming year will be a crash course (no pun intended) in reality investing.

Index investing and the 60/40 portfolio will be pronounced dead, yet again.

This has become one of the few eternal verities of investing. At least we can depend on something. The people who make their living selling us investments have a simple choice: They can make a living, or they can tell the truth — we’re better off without them. Don’t hold your breath waiting for truth.

Clifford Asness will be vilified by pension managers. The outspoken cofounder of AQR Capital Management created a new phrase in 2022. We’ll hear it frequently in 2023: “volatility laundering.”

It’s a snarky term for the notion that people overpay for investments that aren’t priced every day because they aren’t priced every day. That would be things such as private equity, private real estate funds and the like.

Yes, I know. Not the stuff regular folks invest in. At least not directly.

Unfortunately, the nation’s pension and endowment fund managers aren’t regular folks. Here in Texas we’ll know if Asness’ idea cuts the mustard when the public pension funds in Texas report their results as we go through 2023. Expect some embarrassing moments for university endowments, too. Many are heavily invested in non-traded assets.

Whatever 2023 brings, be kind.

Related columns:

Fearless Forecasts from previous years: https://scottburns.com/?s=Fearless+Forecasts

Sources and References:

Manheim Used Vehicle Value Index, https://publish.manheim.com/en/services/consulting/used-vehicle-value-index.html

Sean Tucker, “Carvana Bankruptcy Concerns: What They Mean for Shoppers,” 12/08/2022, https://www.kbb.com/car-news/carvana-bankruptcy-concerns-what-they-mean-for-shoppers/

Ruchir Sharma, “How private markets became an escape from reality,” 12/18/2022, Financial Times, https://www.ft.com/content/7416159d-fa24-4c97-b4a7-302696cd0ede?shareType=nongift

Hannah Zhang, “Cliff Asness Questions Whether Investors in Private Equity Are Being Rewarded – or Penalized — for Taking Illiquidity Risk,” 6/02/2022, https://www.institutionalinvestor.com/article/b1y9pp9mn1jyhz/Cliff-Asness-Questions-Whether-Investors-in-Private-Equity-Are-Being-Rewarded-or-Penalized-for-Taking-Illiquidity-Risk

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Photo: Pixabay by Pexels

(c) Scott Burns, 2023