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The inspiration for this year’s Super Trends report came from Franz Kafka’s 1915 novel, The Metamorphosis, a fictional tale that bounces back and forth between reality and the surreal. The story begins with salesman, Gregory Samsa, waking up to discover that he has overslept, missed his train and – stay with us – mysteriously transformed into an oversized insect-like creature, complete with an armor-plated back and domelike brown belly.
Initially, Samsa is convinced his condition is temporary. Everyone is shocked by his new appearance. Samsa struggles with his new body, sustaining a serious injury while trying to squeeze himself through a doorway. Yet, reluctantly over time, the protagonist begins to reflect and ponder on the consequences of his transformation.
Of course, the entire story is an absurd premise, much like Kafka’s other works, which relish in playing with outrageous metaphors. But Kafka’s writing has captivated millions of readers precisely because his bizarre distortions often mirror reality in a way where parallels are easily drawn.
As it was in 2022, financial markets had their own Kafkaesque backdrop. Investors did not need to stretch their imaginations: reality did it for them. Supposedly rare events – “tail risks” in the vernacular of investing – appeared more frequently than ever. Against all predictions, Vladimir Putin invaded Ukraine. Energy systems were thrown into chaos. Superyachts, those shrines to excess capital and formerly untouchable toys of oligarchs, were seized. And now, NATO, that creature of the Cold War era, is becoming both wider (with Sweden and Finland, previously unthinkable members, jostling to join) and thicker (Berlin’s defense budget is skyrocketing).
Elsewhere, new realities also surfaced. Forget the sober World Cup, Silicon Valley – home to the long and glorious technology bull market of the last decade – finally stumbled. Damage was eye-watering. Lockdown favourites like Netflix and Zoom experienced large losses. SPACs, those blank-cheque vehicles which by a masterstroke of marketing genius received a more respectable imprimatur, imploded. And the year ended, naturally, with a handful of cryptopians in a Bahamian frat house caught embezzling billions of dollars.
Meanwhile, macro fault lines marbled the entire globe. After three years of continuous lockdowns in China, public frustrations finally boiled over into protest. The U.K. scrambled to fill the fiscal black hole left by the failed economic policies of “Trussonomics.” And America, a financial system that became ultra-habituated to low rates, finally woke up to soaring borrowing costs.
All of this has forged an easy fraternity for those predicting more macro doom. Global pessimism is now higher than ever. Understandably, the pull of this narrative is powerful. Because the most recent threats to civilization were a pandemic and then an unforeseen war, we expect the next one to take the same existential form. But should we? The history of markets is one of miscalculated extrapolation; of mistaking lagging indicators for the leading variety. And it is one of thinking in small incremental steps, missing big turns in the narrative. After 2008’s big downturn, investors spent the decade waiting for another global financial crisis to strike again. It didn’t.
Looking ahead, it should be clear that the last few years have marked a definitive end to the age of economic placidity of the 2010s – a metamorphosis of the macroenvironment. In fact, today’s conditions are barely recognizable from the “new normal” features of sluggish growth and low inflation that dominated the last decade.
As we enter the last torrid days of 2022, investors should remember that major bear markets, like the one this year, always signal a change in investment trend. The real danger, then, lies in investor complacency – refusing to change portfolio strategy to align with the new macro fundamentals. The bias for many may be to run back into the investment trends that worked in the past decade. But if those macroeconomic trends of the last decade have been punctured, then it would be highly unusual for leadership not to change as well.
As it happened, Kafka’s protagonist never adapted to his new structure. But this need not happen to investors today. Rather, investors should not panic but pause, recognize that conditions are different, and keep looking forward – even though it may be difficult to see through a tempest of negative data points.
To be sure, the coming metamorphosis will be uncomfortable at times. Different conditions will take some adjusting. Yet many macro trends are spring-loaded to last for years. New bull markets are quietly beginning. More than ever, investors need to look out further and lean into long-term secular themes. Wide-angle global perspectives will be crucial to discern the path ahead and set the right investment roadmap.
We aim to do just that here in the weeks that follow. Forstrong’s investment team, a collective with several centuries of combined global experience, shares our best ideas about the world’s most important Super Trends – those enduring themes that will have the largest impact on capital markets. Our hope is that this report will help investors make sense of the unfolding macro landscape. (For readers who can’t wait for our themes to unfold here, check the complete Super Trends report on the Forstrong website.)
A special thank you to our clients and partners for joining us on this journey. It is a distinct privilege to steward your financial futures.
Tyler Mordy, CFA, is CEO and CIO of Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities selection. The Forstrong Global Investment team contributed to this article. This article first appeared in Forstrong’s “2023 Super Trends Report: Metamorphosis” publication available on Forstrong’s Global Thinking blog. Used with permission. You can reach Tyler by phone at Forstrong Global, toll-free 1-888-419-6715, or by email at tmordy@forstrong.com. Follow Tyler on Twitter at @TylerMordy and @ForstrongGlobal.
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The foregoing is for general information purposes only and is the opinion of the writer. The author and clients of Forstrong Global Asset Management may have positions in securities mentioned. Performance statistics are calculated from documented actual investment strategies as set by Forstrong’s Investment Committee and applied to its portfolios mandates, and are intended to provide an approximation of composite results for separately managed accounts. Actual performance of individual separate accounts may vary with average gross “composite” performance statistics presented here due to client-specific portfolio differences with respect to size, inflow/outflow history, and inception dates, as well as intra-day market volatilities versus daily closing prices. Performance numbers are net of total ETF expense ratios and custody fees, but before withholding taxes, transaction costs and other investment management and advisor fees. Commissions and management fees may be associated with exchange-traded funds. Please read the prospectus before investing. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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