2023 Predictions:

We are in a decade of transition, and how that takes shape depends heavily on what happens over the upcoming years. Mechfi’s view is that 2023 is the first year of this transition period. Others could say the pandemic was that, however, it’s my view this year is the beginning because it is the last year the federal reserve will use to strain out the excesses put into the economy from the monetary stimulus they used to support the economy for the pandemic. From my perspective, I don't think the fed bankers knew Russia was going to invade Ukraine this year, which threw a wrench into things, especially expectations for inflation. That was my first miss of 2022; I was in the “Transitory” camp before the war started. I quickly changed after I realized it was going to be a full invasion.

However, given the complexities of what's happening with supply chains, excess capital, and war, below are some key narratives to check into from time to time to get a general sense of the country's sentiment over the year. How people feel ultimately drives markets.

5 Stories:

1. Markets:
2. Credit: Rates will be high in the way the current culture is not used to, despite their low relative to history. One theme to watch is the fixed-income market, both Gov’t and private. It's no secret that yields are higher than they have been for years. Even if all the noise was muted and you didn’t listen to one piece of poor advice from the financial news, a 2-year bond can pay you around 4% at the end of the day. This type of yield will be available for at least the year's first half. This yield is considered risk-free. Especially considering month-over-month inflation will likely be in the negative at the beginning of the year sometime. They will be an opportunity to invest next year, if not already.
3. Yield will be available in places other than the equity markets this year, although direct stock ownership may have value if you are the type of investor to manage that.
4. Equities: Equities certainly provide returns, but just as important, they provide information on the financial system's health. So even though returns will be hard-earned in the stock market, it’s an important narrative to follow.
5. In short, when it comes to the equities market, it’s up in the air. Current headline stories have been in both directions. Half say that the economy will experience a nominal recession, a small one where the economy does contract, and the other half say the economy will squeeze by one and experience a slower pace of growth.
6. Because this is me, there is only one way to truly deliver this message to you, given that Fast and Furious was a large part of my young adult years. Among Friends, there is a joke that many had heard but was often referred to when a friendly wager was on the table - "I only know of two speeds: fast and too fast." In each case for equities, the pace down to retesting the lows next year will depend on if we go down the recession track. It’s my view that this is the most likely case. The S&P 500 bottomed at close on September 30th, 2022, at 3585.62.
7. A 2023 low of 3300? … Sure, why not.
8. In the second path, where we squeeze by a recession, the market will still scream down fairly quickly and leave some discomfort for investors but not as fast as the rate down the recession track, or in my case, the “too fast” track. Volatility is expected during the entire journey down. Still, in an economic environment like this, there’s a good chance this country will make a few millionaires, maybe a couple of billionaires. Only the engine gods know now (this line is for the real fans).
9. A 4300 December 31st, 2023 close? … Sure, why not.
10. I can’t leave this section without doing what is in my nature as a wealth manager and making a suggestion: accelerating some of your strategies during this time would be wise. If your time horizon is three years and beyond, there is no need to wait, start buying. For newer investors, finishing some extra projects in your garage or alleviating the stuffiness in your closet would also be productive. There’s nothing wrong with using eBay and OfferUp tools at your disposal - use them.
11. In terms of planning, building the ability to visualize a financial plan. Mechanical Financial can put together tools to help people do that and see it in dollar terms.  
12. S&P Range (2023): 3300 - 4300
13. Best Course of Action: Keep buying, Drop a gear and accelerate (last FF reference)
14. Economics
15. -Internal-
16. Inflation: Rising prices, to me, have always been an interesting phenomenon. It happens at different times and in different areas of the economy and is ever-changing. However, there’s a nuance that I believe exists between goods and services and asset inflation. To help with the visual,  goods and services are grouped in one category and assets in another. Price pressures occur for goods and services when more people compete for fewer goods and services. For assets, prices fluctuate based on the last definition, and when more dollars compete for fewer assets. Each principle for asset inflation has a different size impact on prices at different times.

1. -External-
2. Inflation: After this winter, there will be a clearer picture of rising prices. Although it does appear to have peaked, as mentioned above, the month-over-month change for inflation is near zero and has a good chance of going negative. What it won’t be is what we see in the UK. For example, located in Sacramento, CA, I have already met more people from the UK than I recall any year before. Prices are uncomfortable and far more uncertain there. That’s not the same as the US. The US should see an ease in price increases meaningfully by the end of next year.  
3. Moreover, China is on the reopen narrative. How robust depends on how the US economy performs in H1. They are currently dealing with a Covid outbreak, but they have decided to step aside from their Zero Covid policy stance.
4. During the year's first half, US and China will become a vacuum for capital. China for assets spiking due to reopening, and the US for a decently high risk-free yield at a relatively short duration. The issue in this case, however, is that the capital circulating in the economy heads toward the government since they are the ones selling the bonds. Not a lot of private investment will be going on.
5. Since the pandemic and this ongoing inflation episode, private corporations have become significantly wealthier. This is excellent news considering what the pandemic did. The government will now become flush with resources because of the offering of high yields.
6. This falls nicely into the story that this decade is the decade of transitions.
7. Politics:
8. Desantis and Trump: Sam Bankman-Fried: FTX Scandal: Inflation: Kansas City Shuffle: One of my favorite movies of all time is Lucky Number Slevin, Starring Bruce Willis, Morgan Freeman, Lucy Liu, and Josh Harnett. I mainly liked the movie because I always thought the dialogue between the characters was clever a witty. However, in that movie, the story's events take place in a story that Bruce Willis’s character is telling to another character. In that story, Bruce Willis is telling to articulate a principle - a “Kansas City Shuffle” - he defines it as follows:
9. “... when they [the audience] look right, you go left.”
10. Relating that principle to US politics, 2023 is the year to watch for a story like this to begin to take shape. Before the midterm elections, Donald Trump had a much firmer grip on the republican party base (although he is still very much in the lead). Desantis, the second-time elected Governor, appears to be growing in popularity. However, the same rate Donald Trump seems to be losing in the polls, the more Desantis is discussed as being a potential next candidate to lead the party. This draws concern for me.
11. I’m not an expert in politics, but when you consider the type of political environment we are in, the divide between parties makes it ripe for anything to happen domestically and erupt sentiment. I include this in my predictions because the rate of change in Desantis’s popularity is similar to that of Sam Bankman-Fried’s popularity as a donor to Joe Biden’s election. The back-end details of the scandal are yet to be revealed, but again it’s attached to the last election. Combined that with potentially unfavorable details of Gov. Desantis, Trump will be favored in his party again by a considerable margin. However, despite that, that may not be enough to win him the next election against any democrat. And because of that, loyal followers may feel there will be another stolen election.
12. The details mentioned are connected to the FTX narrative. Even though all of the FTX details are planned to be sorted out throughout the next couple of years as they audit FTX’s accounting, the matter has information that impacts the upcoming election, which will have a different effect on markets. Anything in that scandal has the capacity to yank the market in another direction.
13. Again, this is something to keep an eye on throughout 2023.  
14. Escalation with China:  This section doesn’t need to be long. Over the last year, US and China have gone back and forth with political rhetoric. Starting with their extended military exercises around Taiwan following the invasion of Ukraine by Russia and their relationship with Russia, and finally, an unwelcomed visit by House Speaker Nancy Pelosi to Taiwan during the time China’s President, Xi Jinping, was feeling unsettled about his upcoming election. Additionally, the recent 1.7 Trillion Omnibus Bill included funding supporting Taiwan in case of a Chinese invasion. Xi Jinping sent a powerful unit of his air force to fly by Taiwan as a response.
15. More or less, this is the behavior you can expect both countries to continue. The growing concern here is that President Xi Jinping is not only elected for the next five years, he now has other leaders loyal to him elected as counsel around him. Referring to the recent exercises China performed around Taiwan, that could be a reality, similar to Russia invading Ukraine.
16. Culture:
17. Algorithms: The irony of an algorithm is that there is nothing physical about it, yet it dictates so much in the physical world. It is simply a piece of code that does exist on a piece of paper, only digitally. You cut the power, and it disappears into the abyss. However, when the power is on, it can convince and assemble hundreds of people to attack, whether for a good reason or not, to attempt one of the most iconic events in history - the insurrection of the state capital.
18. That’s wild.
19. Some of this is about to change. Social Media platforms are cracking down on this. As of late, they have been doing internal research on how to reduce low-quality/low-value content. Low quality, rewarding not only content that provides valuable details but is delivered in a higher quality production process. So instead of any seemingly charismatic person sharing content, that person needs to have the skill to make that content look good. I like this pivot and the new focus on content algorithms.
20. The path suggests that bad-intending information should contract over time because, often, bad-intending people are lazy. Plus, more intelligent and brighter people will be incentivized to build their content, knowing they do not have to compete with as much unproductive content.
21. Overall, an environment with just a marginal amount of dirty content cleaned up is a better experience for all viewers. And with these changes, we can reduce the amount of the ever-growing negative perspective segment of our culture.
22. Firm Objectives:
23. Form firm’s Investment Committee:
24. Although you will soon be able to see the Investment Policy Statement and view a list of professional asset managers to Altruist, Mechfi’s custodian has access to. The cost structure is highly competitive, from a few basis points to as high as half of one percent (excluding Mechfi’s wealth/investment management fee).
25. Appear on three local podcasts: A more substantial local reputation could be helpful to the firm’s growth and create synergy with my other businesses in the food truck industry.
26. Get Mechfi’s mascot a name and on the road under her own power: Mechfi purchased a classic ‘79 MK1 Volkswagen Rabbit. As all vehicles require, she needs a name. We also have a 1.6 Diesel 4 Speed that ran the last time it was in the chassis. I plan to have that engine in the car, or another that runs, by the end of Q2.

1. MechFi is short for Mechanical Financial.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

‍