As the Federal Reserve continues to hike interest rates, investors should ready themselves for a “real recession” and “deeper bear markets” in 2023, said Ted Oakley, Founder and Managing Partner at Oxbow Advisors.
“It’s [going to be] a real, true recession probably,” he said. “What you want to do is create a situation where, when you get into these recessions and deeper bear markets, you don’t hurt as badly, and the only way you can do that is to have some liquidity.”
Oakley stated that a recession is the biggest investment risk going into 2023.
“We think that when you get into [2023], there’s going to be recession risk,” he said. “In other words, companies won’t make as much money, and won’t be able to borrow as much… when you’re in a recession, you have to be in a position where you can survive and get to the other side.”
Oakley spoke with David Lin, Anchor and Producer at Kitco News.
Labor Markets
Tight monetary policy in the U.S. will lead to a slackening in labor markets, said Oakley, who expects unemployment to reach as high as 6 percent.
“I think the general unemployment will certainly go higher,” he said. “I would certainly look for 5 to 6 percent [unemployment].”
Tech firms like Amazon, Meta, and Twitter have already faced massive layoffs, with Twitter CEO Elon Musk firing more than 50 percent of the company’s workforce.
Oakley claimed that although layoffs are mainly affecting white collar workers, soon all workers will face a loosening of job market conditions.
“If you look right now, there are generally more white collar [layoffs] than the rank-and-file employees,” he said. “I think the entire thing will go up in the first half of this year, so that unemployment will go up from where it is now to a higher level.”
In his speech on November 30th at the Brookings Institute, Federal Reserve Chair Jerome Powell highlighted that fewer young people are entering the labor force, suggesting a structural problem. Oakley agreed, especially when it comes to “service jobs.”
“That’s where they’re having a lot of trouble right now,” he claimed. “I don’t think a lot of young people want to do that necessarily… and maybe they don’t pay them enough to do it.”
Housing Markets
The S&P/Case-Shiller Home Price Index has risen by 40 percent since the start of the COVID-19 pandemic. However, U.S. house prices have recently taken a dip, and could fall as much as 20 percent, according to a recent report from the Federal Reserve Bank of Dallas.
Oakley said that the housing “super bubble” was driven by low mortgage rates. Now that the Federal Reserve is raising interest rates, those low mortgage financing costs will disappear.
“The housing market got stupid in its own way,” he said. “Most people have a mortgage that they could never refinance at this level, because most mortgages are below four-and-a-half [percent]… so [the housing market] will probably have more pressure on it as you go into 2023.”
To find out which recession-proof investments Oakley is making, watch the video above
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