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Market Update 12/30/22

Nearly every money manager in the industry would state that we are all happy to have 2022 behind us. Inflation engulfed savings and nearly ever asset other than oil declined, some dramatically. We do our best to protect assets in challenging periods and this year turned out to be an exercise in asset protection. The question now is what to do going forward.

I’ve advocated for some time that short term debt is attractive, and the past few months validated such. With the Fed jacking rates by 425% this year, fixed income got crushed and we avoided that asset until recently, as rates have waned. I believe that a portfolio including fixed income will be attractive in 2023 as I expect inflation to collapse. What is also clear is that corporate balance sheets and earnings matter again. The YTD performance of the Dow vs. the Nasdaq is a clear indication as the Dow’s index of mature, profitable companies outperformed the Nasdaq by 25% this year. As always, the critical factor for all assets next year will be the level of rates. If rates remain in the current range, profitable companies and fixed income will yield positive returns.

About once a decade the markets have a year that question the very purpose of investing whatsoever and 2022 proved the one. But we know that these are anomalies and assets eventually revert to their mean. The surprise for 2023 would be excellent performance in both fixed income and equity. Don’t discount the efficiency of the markets, it’s absolute. Happy New Year from all of us at Warcap and as always, I appreciate the continued trust and confidence.

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