When you’re right once, you’re lucky; when you’re right often, you’re despised
By Willie Costa & Vinh Vuong
Many analysts have said much of 2022 was unpredictable or unusual, but it was a turbulent year regardless. Although it’s obvious that nobody can precisely predict the economy along with unforeseen events (e.g. Ukraine-Russia War), the economic writing on the wall was quite clear. It was basic ignorance, denial, or downright stupidity for anyone to not have seen what we saw with crypto, inflation, the housing market, and lackluster leadership in Washington. We at VUONG Holdings and Garrison Fathom saw it coming from day one as seen in our previous pieces throughout 2022.
So here we are. The start of a new year is often a wonderful time for reflection as well as prediction, and perhaps the most rewarding facet of this is being able to look back and see where you got it right. With that said, here are some thoughts on the year we’ve left behind and some forecasts for the year ahead.
The Crypto Winter Was Forecasted
The line between investing and speculating has never been thinner than when it comes to cryptocurrency. For the fundamentalists, 2022 was a bittersweet combination of ultimate market revenge combined with multiple “I-told-you-so” moments bathed in seas of red ink. It was also the year that future economic sociologists will study intensely as the moment when most of the world completely lost its damn mind. As we’ve mentioned and have discussed multiple times, there are only three ways to build wealth: interest, dividends, or capital appreciation. “Everything else is a ponzi,” which in hindsight seems eerily prophetic as the world finally learnt the answer to what Bernie Madoff would look like if his fashion sense were as ragged as his investment thesis.
One of the cornerstones of investing is as true now as it was when the Dutch East India Company became the first publicly-traded company: if it’s too good to be true, it probably is. The optimists would be tempted to think that after 400 years we would’ve all finally learnt its lesson; and as usual, the optimists would be wrong.
We praised SEC Chair Gensler’s op-ed and his nuanced approach to the issue of crypto regulation – a far more balanced and elegant response than we might have given to an “industry” that’s shown itself to be little more than an international cabal of technorati utterly divorced from reality and the vagaries of human nature, whose high-minded visions of a decentralized future have so far only increased the scale and efficiency of criminality. The one bit of good news for rational investors is that, much like winters in Westeros, the crypto freeze is likely to last for years. Even proponents of “corruptocurrency” are predicting an extended freeze, maybe even permanently. We are hopeful that once it thaws the world will have sufficiently sobered to examine the potentials of crypto with more discerning eyes.
The Tangled Mess of the Economy
The interplay between GDP and unemployment is so broadly-understood that it’s tautological to even bother writing a piece on it. But the important things are always simple, and the simple things are always hard. The “not seen in forty years” series of economic chaos has given rise to increasing mention of something else not seen in decades: stagflation. The delusion of “transitory” inflation has conspired with the lowest labor participation rate in 40 years, and while political sycophants praise the ten million jobs created during President Biden’s first two years in office, people conveniently forget that the pandemic wiped out twice that many jobs in a single month.
It’s arguable that at no other time in history has truth been more relative than right now – ironic since this is the age when the sum total of human knowledge is constantly available at our literal fingertips, on $1,000 disposable pocket computers that are orders of magnitude faster than what used to be called “supercomputers.” This is an age where the rationalist would be given plenty of reason to think that with so much data available, there’s not a single falsehood that could survive. But, in the words of the esteemed mathematician John Allen Paulos, “Data, data everywhere, but not a thought to think.”
Never has hiding from the truth helped a single soul, but alas, we live in the era of identity politics where reality is fluid and innumeracy is only a deficiency possessed by The Other Guy. Our cries of stagflation were, at best, met with raised eyebrows; our claims that the Fed’s tepid rate policy was only delaying the inevitable were declared alarmist; yet now pundits are being given the media attention they so richly deserve for speaking the truth: we are in a recession “by any definition,” we are headed for a potentially-severe downturn, it is going to be painful, and at this point it’s probably unavoidable. There is no polling strategy, op-ed, interview clip, or any mathematically defensible analytical technique that can pervert the truth any longer.
In a very dark, masochistic fashion, this is exactly what we deserve. The mechanics of economics are often at odds with the dreams of politicians, because – much like in physics – actions of monetary policy cause inexorable reactions on a macroeconomic scale. Cut rates and inflation will tend to rise; raise rates and inflation will tend to slow; enact toothless monetary policy sheepishly, like Oliver Twist begging for more macro stability, and the political spin machine will turn the wealth of Americans into confetti.
The Spaghetti Bowl of Pain
An economy is much like a freight train: difficult to influence, but once accelerated (or slowed) it becomes equally difficult to counteract. Yet this past year has given us examples (e.g. China’s abrupt Covid Zero reversal) of world leaders treating their economies like yo-yos, gleefully whipsawing them back and forth seemingly without care. The fact that so many on Wall Street and in Washington got 2022 so wrong gives many a heightened sense of unease. Jobs have been added on hollow hopes that 2023 will be better, inflation continues to bare its fangs while the Fed offers nibbles in return, and the yield curve inversion continues to deepen. The rationalizations for why these are all signs of progress may be politely termed ephemeral.
Here is the brutal truth: the economic well-being of the world in general, and of our fellow Americans in particular, is in serious danger. Our leaders have built an altar to delusion upon a tangled mass of massaged data, misspoken statistics, and outright fantasy – a spaghetti bowl of wishes, compromises, and lies. We have forsaken Volckerian discipline for the comforting promises of free money and a better tomorrow without even the decency to question whether these hopes were logically sound. For our insistence upon political expediency and the crime of our hubris, 2023 will be a year of reckoning, perhaps the opening salvo in a long barrage of downturns and a slow and painful return to rationality.
Brace yourselves and stick to core principles, because realistically you have no other choice.