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The Market  

Slowly and then all at once. That was one of the first axioms I learned about finance about how bankruptcy occurs. I have reflected on that statement over the years and marveled at its accuracy. Moreover, I seem to find new applications of the rule every year.     

As I go over the current leaders in the stock market, this phrase keeps ringing in my head. The overall market keeps trending down at a steady pace yet the VIX, which is a good measure for the fear in the heart of the market, remains low as though no one is that concerned about the decline. The VIX spikes during the 2008 and Covid sell-offs were more than double our highest reading of 2022. The market is down 19%, with many tech stocks down 50-80%.   But the market is telegraphing there is no need to panic. Perhaps that sentiment is accurate, but when I look at the bigger picture, it is hard to agree.

The combination of a 13-year rally with little relative correction, inflation we have not seen in 40 years, the sword of interest rates fighting back, and general market complacency makes me uneasy. The public seems unconcerned because they still have too much money from the 2020 asset inflation, pay raises, and overall job security in the current environment. 

But the strength in the economy and consumers is what the Fed needs to crack to bring inflation under control. I think Jamie Dimon with JP Morgan Chase made an accurate prediction that inflation and higher interest rates will eat away at people's savings by the middle of 2023. With smaller bank accounts and prospects of job loss increasing,  I suspect we will see the all-at-once phase in late 2023.   

Our Holdings

As of the writing of this newsletter, FBG Capital is 98% in cash. The maximum holdings I have had since the last quarter was 3% invested. We own a small amount of FCX and and SCCO, and our first trade of 2023 was purchasing a put option on the oil explorer APA.

Looking Forward

I have spent the last few days looking for any new leadership, trends, rising stars, or changes in market attitude but I am even more convinced that we are headed for lower lows. That doesn't mean there won't be pockets of strength. My best-picked themes for 2023 will be a few small oil-related stocks outside the exploration sector such as TDW, small-cap biotechs such as CPRX, and some small companies related to supplying the aerospace and defense sectors such as ATI and HWM. I keep hoping for Gold and mining stocks, but it has been lackluster so far.

I look forward to 2023, as I think we will see some interesting developments with market themes and the battle between the bulls and bears. I suspect it will be a lot like 2022 with moments of feeling out of the woods only to go racing back in. This essentially puts us in a holding pattern for better days ahead. 

And speaking of holding patterns. I have taken on a new hobby, learning to fly, while waiting out this market. The focus, rules, learning, and general coolness factor are all right up my alley. The part about crashing, however, is a big concern. I wasn't sure how to avoid these freak accidents. I researched the NTSB files and read any article on past accidents to learn from others' mistakes. But I could not find the common thread. Finally, one day while discussing my concerns with my flight instructor, he told me a crash is almost always the result of a series of small mistakes that compound to the point of no return. Ahh, I said. Slowly and then all at once.