Manufacturing will come home to the U.S.

• Biden’s physical and human infrastructure bills plan to allocate trillions of dollars in infrastructure spending, high-speed internet systems and clean energy, and also fund other priorities such as child care and healthcare.

Verdict: Correct. GM, Intel and US Steel opened new factories on U.S. soil this past year, and other companies are spending billions to bring manufacturing back home.

M&A multiples

• In the immediate near term, I do not think multiples will be reduced but if interest rates stay high, then multiples will eventually be reduced as cheap money retreats.

Verdict: Correct. The FED has followed suit of these developed markets and have begun to raise interest rates, because of this, the window for companies to sell for a large multiple is starting to wane.

Hiring

I expect the US labor supply to increase as health risks recede. Further, the ~2.7 million workers who were better off collecting augmented unemployment benefits instead of working will probably seek jobs in the months ahead.

Verdict: Correct. Employment has lowered once again; it is not quite back to pre-pandemic levels but it is getting close.

Infrastructure

There will be a major uptick in corporate and government spending. Current Corporate Balance Sheets are swelling with cash, and the Democratic-led House will push for spending as they push through Joe Biden’s “Build Back Better “plan.

Verdict: Correct. U.S. Companies and the US government have spent significant dollars in capex to redeploy resources to the US

Midterm elections

Although I am predicting a red wave in the House of Representatives, I feel the Senate map is particularly challenging for Republicans and the Senate will remain in Democrat control.

Verdict: Correct. The house was won by the Republicans, and the Democrats slightly control the Senate.

Consolidation

In 2022, as the U.S. and European economies march further into mid-cycle, I expect a strong growth environment characterized by higher inflation than investors saw in the previous cycles

Verdict: Jury is still out. The end of this year will be crucial in determining if this prediction proves correct. I speak with many businesses throughout the country and the majority are still experiencing low double-digit growth.

Allocation of cost of goods sold

In recent years, innovations emerged in e-commerce, tech hardware and cloud computing. E-commerce spending is 20% higher than it was before the pandemic, and global spending on cybersecurity for cloud computing grew at a 40% pace in 2021. All benefited from the fact that people spent more time online

Verdict: Correct. E-commerce sales continued to rise, and the number of companies turning cloud-based is also on the rise.

Buyers currently have the edge in the market, but there are fewer and fewer "A" tier companies that are for sale, meaning that strategic buyers will still pay a premium for those.

MY PREDICTIONS FOR 2023

Overall, I would call that a pretty successful year of predictions as I went almost 9 for 10. Now that those predictions are done and dusted, let's take a look at my predictions for 2023, where I hope to find just as much success this year as I did last year.

1. Housing values will drop 5 to 15%
   • Because interest rates have gone up, it is going to become a buyer's market, not a seller's market;
   • Capitol economic group researchers predict that the sale of single-family homes will be at its lowest numbers since 2011; and
   • They probably should retrench further but due to the housing need of almost 25 million homes, the values will not dip further due to demand.
2. Energy prices will come down 10-20% - average gas prices
   • The World Bank has predicted that energy prices will decline by 11% in 2023 after having surged 60% in the current year following Russia's invasion of Ukraine. In its latest Commodity Markets Outlook, the World Bank projected that Brent crude will average $92 a barrel in 2023 before easing to $80 in 2024--still well above the five-year average of $60; and
   • According to the Bank, both natural gas and coal prices will decline in 2023 from record highs in 2022.
3. Ukraine, NATO nations will tire of funding the war with Russia and there will be a settlement
   • Ukraine recently took back Kherson which Russia previously occupied; and
   • War attrition is starting to set in for Russia and its citizens, and by the end of 2023 I think the call for Russia to get out of the war will be even louder.
4. Student loan debt relief bill will not be passed in Congress, but will be reintroduced prior to 2024 elections to motivate voters
   • An injunction was placed on the bill by an appellate court on Nov. 14th, 2022
   • The Republican majority Supreme Court is unlikely to overturn the decision made by the 5th Circuit Court, the hearing in the Supreme Court will occur in February, and I am predicting it gets denied
5. Both Biden and Trump will announce they are not seeking re-election in 2024
   • Both are yet to announce that they are seeking re-election, and are starting to look more and more unlikely ;
   • Trump’s support during the mid-terms did not seem to be a big catalyst for Republican nominees and DeSantis’s overwhelming victory will be a determining factor for Trump. Biden’s age and inability to campaign will prove an opportunity for new blood for the party; and
   • “Father Time” is not on either of their sides.
6. M&A Market: Buyers of businesses will be present in the market, thus creating competition and engagement thereby making any increase in interest rates a neutral situation for valuations
   • Buyers currently have the edge in the market, but there are fewer and fewer “A” Tier companies that are for sale, which means the strategic buyers will still pay a premium for those. Smaller companies will see somewhat of a decrease in value but if the location or strategic fit works for the buyer that could play a difference.; and
   • Historically low-interest rates mean more companies are looking both to sell and buy. Interest rates certainly went up in 2022, but they are still historically low if you look at it from a 100-year perspective.
7. 5-10% top-line growth in 2023 is my prediction, but I do not see a recession occurring in 2023
   • The FED has come out aggressively late in this current year to fight inflation, and I do not believe their efforts will be in vain; and
   • There are also a few trends that have come out of 2022 that I see continuing into 2023 that will calm all talks of recession: low jobless claims, positive wage growth, and slowing inflation.
8. The benchmark interest rate will rise 3 times and will move from 3.5% to 4.5% - two 25-basis point moves and a 50-basis point move.
   • As the FED continues to fight inflation, interest rates will continue to rise to counterbalance it; and
   • This prediction is based both on feeling and judging of historical data from the FED, mixed with recent rises in the interest rate.
9. China’s economy will slow as civil unrest grows and manufacturing returns to the US
   • Just as we discussed in assessing last year's predictions, many major US-based companies have invested billions in installing new factories and facilities in the US. Because of this China’s economy will slow as it starts to lose its domination in manufacturing; and
   • Growing Covid concerns has begun to cause civil rest again in China; this will lead to even more manufacturers pulling out as the workforce will decrease due to the unrest.

To wrap up my predictions, I hope I am right about all of the positive predictions and wrong about the negative ones. Either way, I will review my predictions next December to hold myself accountable! Good luck in 2023 and I hope nothing but the best for you, your family and your business!