Blackstone’s Ten Surprises for 2023

Like every year, Blackstone, one of the largest alternative investments manager with over $951 bn assets under management, published its 38th edition for their Ten Surprises for the year.

Blackstone defines a Surprise as an event in which the average professional investor would assign a one-third chance of taking place, but which the asset manager believe has a 50% or better chance of happening.

1.    Multiple candidates on both sides of the aisle organize campaigns to secure their party’s presidential nomination. There are new headliner names on the respective tickets for 2024.

2.    The Federal Reserve remains in a tug-of-war with inflation, so it puts the word “pivot” on the shelf alongside the word “transitory.” The fed funds rate moves above the Personal Consumption Expenditures price index (PCE; 4.7% for November) and real interest rates turn positive, a rare phenomenon relative to the last decade, but appealing for fixed income assets.

3.    While the Fed is successful in dampening inflation, it over-stays its time in restrictive territory. Margins are squeezed in a mild recession.

4.    Despite Fed tightening, the market reaches a bottom by mid-year and begins a recovery comparable to 2009.

5.    Every significant correction in the market has in the past been accompanied by a financial “accident.” Cryptocurrencies had a major correction and that proved not to be a systemic event. This time, Modern Monetary Theory is fully discredited because deficits have proven to be inflationary.

6.    The Fed remains more hawkish than other central banks, and the US dollar stays strong against major currency pairs, including the yen and euro. This creates a generational opportunity for dollar-based investors to invest in Japanese and European assets.

7.    China edges toward its growth objective of 5.5% and works aggressively to re-establish strong trade relationships with the West, with positive implications for real assets and commodities.

8.    The US becomes the largest producer of oil. The price of oil drops primarily as a result of a global recession, but also because of increased hydraulic fracking and greater production from the Middle East and Venezuela. The price of WTI touches $50 this year, but there’s a $100 tick out there sometime beyond 2023 as the world recovers.

9.    The Russian invasion of Ukraine continue for the first half of 2023. In the second half, the combination of humanitarian and economic costs on both sides derives in a ceasefire and negotiations on a territorial split begin.

10.    In spite of the reluctance of advertisers to continue supporting the site and the skepticism of stakeholders about the firm’s credit quality, Elon Musk gets Twitter back on the path to recovery by the end of the year.

It is important to mention that this weekly commentary is for informational purposes and does not reflect an investment recommendation by our Investment Committee.

Probability of Recession for the coming 12 Months

Source: JP Morgan

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