Myth of Money: Macro Outlook for 2023
Welcome to this week’s edition of Myth of Money, a weekly newsletter on the digital asset markets read by 12,000+ investors.
Disclaimer: The following is not intended as investment advice. Do your research.
Global growth slowed in 2022 due to various factors such as the reopening boost fading, tighter fiscal and monetary policies, Covid restrictions and a property slump in China, and the Russia-Ukraine war.
Analysts predict global growth to be at 1.8% in 2023, with the US showing more resilience compared to a European recession and a slow reopening in China. In the US, we're expecting core PCE inflation to slow from 5% to 3% in late 2023, with a slight increase in unemployment.
The Federal Reserve is predicted to hike rates by another 125bp to reach a peak of 5-5.25% in order to keep growth below potential while real income growth strengthens. No rate cuts are expected in 2023. The drop in core inflation despite a small impact on employment is thought to be due to the differences in this cycle compared to previous high-inflation periods.
These differences include a post-pandemic labor market overheating in job openings rather than employment, the ongoing disinflationary impact of normalized supply chains and rental housing markets, and well-anchored long-term inflation expectations.
The Euro area and the UK are likely to be in recession due to the negative impact of rising energy bills on real income. However, the recession is expected to be mild since Europe has successfully reduced Russian gas imports without damaging economic activity, and is likely to experience the same post-pandemic improvements that are helping the US avoid recession. As the risk of a deep downturn and persistent inflation decreases, we're expecting interest rate hikes through May with a peak of 3% for the ECB.
China is expected to have slow growth in H1 due to a surge in Covid cases following a reopening in April, but growth is predicted to pick up in H2 due to the reopening boost. Our long-term outlook for China is cautious due to the decline in the property market and slower potential growth.
Impact on the Housing Market
It's expected that higher interest rates will have less of an impact on mortgage holders due to the efforts of US and UK households to secure low mortgage rates. In the US, only 5% of mortgages are adjustable, compared to over 20% in 2007. The 30-year mortgage rate hit a low of 2.8% in 2020, leading to a surge in refinancing. Unless these individuals move, their disposable income will not be affected by recent interest rate increases.
Some UK households have also taken steps to protect themselves from the potential impact of rising interest rates. In 2005, when the last significant tightening cycle began, 70% of mortgages were variable rate, compared to only 14% today. However, 25% are fixed for only two years, making the UK more vulnerable to the impact of higher interest rates, although with a delay.
High rates have significantly slowed buying activity, as new buyers may not be able to afford higher mortgage payments.
Technology Highlights of 2022
There were several key events in 2022 that are worth noting for technology professionals, futurists, and investors:
ChatGPT: The widespread adoption of ChatGPT had a similar impact to the early days of the iPhone, suggesting the potential for a "Cambrian Explosion" of ideas.
FTX Collapse: The arrest of Sam Bankman Fried demonstrated that even major players in the cryptocurrency industry are not immune to scams, leading to efforts to expose and eliminate bad actors within the industry.
Elon’s Twitter: Elon Musk's takeover of Twitter sparked debate and highlighted the importance of free speech and limiting government interference in this practice. Adobe's acquisition of Figma for $20 billion during a major market downturn showed the resilience of strong businesses.
Semiconductor Industry: Through the blacklisting of 21 major Chinese manufacturers, the re-onshoring of semiconductor manufacturing in the US indicates an increase in domestic chip capacity and autonomy for America.
These events are just a few examples of the significant progress being made towards a better future despite challenges.
Investment Verticals for 2023
Venture capitalists are actively looking at the following investment verticals for 2023:
Artificial Intelligence and Machine Learning: AI and ML technologies have the potential to revolutionize many industries, from healthcare and finance to transportation and retail. (ChatGPT anyone?)
Decentralized Technology (blockchain, crypto, etc.): Decentralized technologies have gained significant attention in recent years due to their potential to disrupt traditional business models and revolutionize industries such as finance, supply chain management, and even brand engagement through NFTs :)
Gaming: The gaming industry has exploded in popularity in recent years, with the rise of mobile gaming and the increasing number of people spending time at home due to the COVID-19 pandemic. Gaming in Web3 is becoming a major focus.
Healthcare: As our demographics continue to skew older, healthcare becomes a vital and-in-demand industry, and it is ripe for innovation. Venture capitalists are therefore looking to invest in companies that are developing new medical technologies, treatments, and services that can improve patient outcomes and reduce costs.
Consumer Goods and Services: This vertical encompasses a wide range of industries, including retail, food and beverage, and personal care, offering innovative products or services that meet the needs and desires of consumers.
Energy and Clean Tech: As concerns about climate change and the need for renewable energy sources continue to grow, venture capitalists are looking to invest in companies working on clean technology solutions, such as renewable energy generation, energy storage, and energy efficiency."
What I’m reading this week:
This Week By the Numbers 📈
Top Stories 🗞️
Amazon introduces prime air, begins drone delivery service in California and Texas
Amazon has started a pilot programme in two towns in the US, Lockeford CA, and College Station TX, of delivering packages through drones, called Prime Air. Prime Air users will receive their orders within 60 minutes of placing an order, as long as it is under 2.25 kilograms. The retail giant finally received approval from the Federal Aviation Administration of the United States of America to use drones for package deliveries, earlier in August this year. The maximum payload for deliveries using Prime Air is 5 pounds or 2.25 kilograms, which is about 85 per cent of all Amazon’s shipments. Residents of both towns now have the option to sign up for the service. Once they do, Amazon will then confirm whether the company can deliver safely to the customer’s address. Once a customer places an order, the customer gets an estimated delivery time and tracking info. “The drone will fly to the designated delivery location, descend to the customer’s backyard, and hover at a safe height,” Amazon said. “It will then safely release the package and rise back up to altitude.”
Coinbase Reaches $100 Million Settlement With New York Regulators
Coinbase, a publicly traded cryptocurrency trading exchange based in the United States, agreed to pay a $50 million fine after financial regulators found that it let customers open accounts without conducting sufficient background checks, in violation of anti-money-laundering laws. The settlement with the New York State Department of Financial Services, announced Wednesday, will also require Coinbase to invest $50 million to bolster its compliance program, which is supposed to prevent drug traffickers, sellers of child pornography and other potential lawbreakers from opening accounts with the exchange. It’s the latest hit to the once-highflying global cryptocurrency trading business. Several cryptocurrency firms have filed for bankruptcy over the past year — most notably FTX, which was the world’s second-largest crypto exchange before it collapsed in November.
SBF’s anticipated not guilty plea was a ‘smart play’
The former CEO of crypto exchange FTX, whose company collapsed in November, made the plea in Federal District Court in New York. It’s very common in the federal criminal justice system for defendants to plead not guilty at their initial appearance, Mary Beth Buchanan, a former U.S. attorney now advising blockchain companies, said to TechCrunch. The expedited timeline of FTX’s collapse and the legal actions against those involved was unexpected and unprecedented. In less than two months, Bankman-Fried faced eight federal criminal charges, while others close to him — including FTX co-founder and former CTO Gary Wang and Alameda Research CEO Caroline Ellison — pleaded guilty to multiple charges and accepted plea agreements. But Bankman-Fried pleaded not guilty “because he had the absolute right to do so,” Anthony Sabino, a professor of law at The Peter J. Tobin College of Business at St. John’s University, said to TechCrunch. “And it was the smart play. Keep your options open. Do not give the government an edge. Wait it out. A deal can always be made later.”
Silvergate Tumbles After FTX Implosion Prompts $8.1 Billion Bank Run
Silvergate Capital Corp. shares plunged after the bank said the crypto industry’s meltdown triggered a run on deposits, prompting the company to sell assets at a steep loss and fire 40% of its staff. Customers withdrew about $8.1 billion of digital-asset deposits from the bank during the fourth quarter, which forced it to sell securities and related derivatives at a loss of $718 million, according to a statement Thursday. Executives said on a conference call that Silvergate may become a takeover target. “In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows, and we currently maintain a cash position in excess of our digital asset related deposits,” Chief Executive Officer Alan Lane said in the statement.
Binance Built a Blockchain, Except it Didn’t
Binance, a cryptocurrency exchange company, has been promoting decentralization with its Binance Chain and Binance Smart Chain. However, these "blockchains" are highly centralized and regularly alter history, going against the core principle of immutability in blockchain technology. This raises questions about the true nature and purpose of these networks. It is important for users to be aware of the level of centralization in the networks they are using and to consider whether they align with their own values and goals.
Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
By Tatiana Koffman
Hi there and thanks for reading! If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I write to make financial topics more accessible and create equal opportunity for the next generation of investors. I have personally invested in 20+ companies and funds (my portfolio).
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