2022 has been nothing short of crazy, and a year filled with changes. The clarity and forecasts with which company executives tend to operate has become a bit muddied in 2022. Navigating a cost of materials increase, staff turnover aka “Quiet Quitting,” wage pressures, and an inflationary environment added complexity into leading your firm. To highlight a few macro events:
- Inflation: Appears to have peaked near 9% and is now near 7.5%
- Interest Rates: The Federal Reserve has raised rates from near 0% at the start of 2022 to near 4%, with a few more rate hikes projected before a projected pause in rate hikes
- Consumer Savings: 2020 and 2021 led to low interest rates and stimulus checks, and those were put to work spending on goods and services in 2022. Many consumers received healthy wage increases in 2022.
- Consumer Spending: Traveler spending will almost regain its 2019 level. Business travel will remain weak, as firms cut costs.
- All eyes on Ukraine: Energy prices, inflation, interest rates, economic growth, food shortages—all depend on how the conflict plays out in the coming months. Rapid progress by Ukraine could threaten Vladimir Putin, but a grinding stalemate seems the most likely outcome. Russia may also try to string out the conflict in the hope that energy shortages work in their favor.
- Recession Talk: Major economies will likely experience some form of a recession as central banks raise interest rates to rein in inflation, an after-effect of the pandemic that has since been impacted by high energy prices. America’s recession should be relatively mild; Europe’s will likely be deeper. The strong dollar negatively impacts countries already hit by soaring food prices.
- Climate silver lining: As countries rush to secure their energy supplies, they are turning back to fossil fuels. A potential long-term trend of this war will be the switch to renewables as a safer alternative to hydrocarbons supplied by autocrats. As well as wind and solar, nuclear and hydrogen will benefit too.
- Midterm Election: Resulted in a split congress for the next 2 years
- Compressed profit margins: for some companies due to higher cost of labor, tight/backlogged supply chains, increased competition for raw materials, etc.
Many of these themes will be present as we head into 2023, and how they will evolve. This paradigm is a balance of that which we can and cannot control.
Given the Macro events, what can we control:
- Managing company finances: having an objective and goals-based approach. Steering away from emotion and politically based assumptions. Review your budgets, tighten up control, make your firm leaner and more efficient, and always review cost controls
- Have a positive mindset: treat your customers the best that you can, deliver exceptional performance, build clients that will stay with your firm through market ups and downs. Continue to improve and add to your services to better serve clients
- Metrics: Have goals, and review them regularly (monthly, quarterly) to steer your firm long term, and have data to adjust course when needed. Measure profitable and laggard business units/functions
- Create a financial plan: “A goal without a plan is just a wish”- Melissa Houston of Forbes: Having a plan gives you goals and benchmarks to measure success, as you navigate 2023 and onward. Things will ebb and flow, but having a plan allows you to steer back onto course when challenges arrive
- Cash Management: Always maintain healthy reserves, review outstanding debt obligations, and manage a healthy cash position. Keep your financial house in order. Having a strong cash position allows you to navigate when things go off plan, and to capitalize on new opportunities as you build your plan.
That which we can and cannot control is a key theme heading into 2023. We cannot control the macro environment. What we can control is our vision, goals, plan, mindset, care for clients and exceptional client service. Be in tune with your clients, your employees, the macro environment, your firm’s financial wellness, and your firm’s long-term vision. Things will always arise, but having that long-term vision is how we get back on track when obstacles hit us in the face.
Written by: Todd Rohrer, CKP® and Justin Hamlin, CFP®
These are the opinions of Todd Rohrer and Justin Hamlin and not necessarily those of Cambridge, are for information purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. The strategies discussed herein are not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. However, prior to opening an account, Cambridge will consult with you to determine if your financial objectives are appropriate for investing in the model. You are also provided the opportunity to place reasonable restrictions on the securities held in your account.