Off to the Races

It feels like 2024 is off to a fast start right out the gate. Tis the season for goals, outlooks, and prognostications. Here are a few observations as we start the New Year. Though I do not hold myself up with my old boss and mentor Jason Trennert or the venerable late Byron Wien; I do believe we have some surprises in store. 

Certainty Before the Uncertainty

• I described much of last year as a lot of busyness for the same business. Everyone I spoke to from Dubai to Denver seemed to agree that everything in 2023 just took longer to get done. Deals stuck in endless back and forth, over-scheduling making things that should have taken a month to get done took a quarter and some things that should have come to fruition dyed on the vine. That all seemed to change in the fourth quarter as people sprinted to get more done before the clock struck twelve. More than that, leaders have already committed to more decisive plans for 2024 as part of their goals and resolutions for 2024. I expect firms to take action, from reductions in force to acquisitions, starting in the first quarter. There were some notable changes in senior leadership across the industry 2023. The results of which will manifest in actions that will be taken in 2024. The balance of positive vs negative decisions may come down to how much the Fed does or does not cut rates this year. The fact that it is a Presidential election year in the US also means that after a year where it took 12 months to get 6 months of tasks accomplished, we will likely see many try to get 12 months of goals accomplished in a 6 months sprint between February and July. Buckle Up. 

Analogue is the New Digital

• I have been saying this for years, but this year it will be especially true that trusted relationships and companies investing in their talent are the most important things. I have seen companies with incredible tools that go to waste because time was not invested in teaching their people how to use them. It is not only the employee facing tool where technology development is not enough. Too often client facing technology has not kept up with the horsepower of the tools the companies can offer. Both often come down to firms across the industry focused too much on their own org structure and product segmentation and not enough on how they got to market and are seen by their clients. This results in vast amounts of unrealized potential which requires a firm to be dynamic in their approach rather than building more products and redundant patches to internal systems. 

Muddy Data

• Since my Macro days at Strategas, one of my own leading indicators has been to ask cabbies and Uber drivers around the holidays how many shopping bags they were seeing and if there were lots of people going to/from Holiday parties. The latter went away completely during COVID and has not seemed to have ever fully recovered, but this year drivers said, despite a pick up in the number of tourists, there have not been as many shopping bags year over year. Between Hannukah and Christmas, there were some nights when things were eerily quiet. This contrasts with closer to Thanksgiving, when many drivers remarked at how busy traffic had gotten and ride activity was up. I was also surprised at how difficult it had become to get a reservation in Midtown for lunch again. All this points to some mixed numbers expected for 4Q which is likely to continue as we pass the turn into a choppy 1Q. 

M&A Activity in the Wealth and Fintech Industry

• The sudden collapse of First Republic sent many advisors spinning off to start their own firms, join RIAs who did not have a bank, or find another bank’s wealth department to join, while a good portion of the team stayed to become part of JP Morgan. Although there was a single headline M&A event there were essentially a series of acquisitions. These ranged from about $150M to $15+B in AUM which, under other circumstances, would have warranted headlines of their own. M&A activity in 2024 in the wealth space will be more active as borrowing rate moderate and markets put in choppy new highs. This eases acquirers' financing cost and boosts sellers’ valuations. Several independent firms have already surpassed the $100B in AUM threshold. They will now look to make strides to the next strata, $500 Billion in AUM, through large acquisitions or a merger of potential mergers equals. We will likely see more mergers in the fintech space as well given the emergence of new firms during the low rate environment who are now looking to provide more comprehensive solutions.

Real Estate Disappointments

• Everyone seems to have a strong view on real estate which means that no matter what happens to the commercial and residential markets this year some people are bound to be disappointed. Sellers have pulled properties off the market which failed to catch a bid, or at least one they would accept, and buyers are constrained by high rates and high prices making down payments harder to muster even if rates come down. The commercial market has been the sword of Damocles everyone has been expecting to drop which has yet to pierce the economy. Giving the rolling nature of commercial real estate debt, it may just be that the market has only had to digest tranches at a time rather than dealign with a singular event. There has also been more demand to have employees in office at least a few days a week. Just the other day, a friend who recently retired as Head of Equities at a SIFI Bank remarked that real estate needs to be looked at like utilities, which is managed to service peak demand even though much of the time it operates at below peak; this means, if people are in the office 40-60% of the time, but it is 80% of the people those days then capacity demanded is 80% not 40-60% of headcount. Therefore, hybrid work may not be as bad for commercial real estate as anticipated. I also noticed that some buildings, like NYC’s 200 Park Ave. which a few years ago looked like it had not had a major updated since they took the PanAm sign down, took advantage of the reduced use the past few years to undergo extensive renovations to help their renters entice their employees back to the office a few days a week. 

I am going to stay away from interest rates and the elections like I do religion and politics during holidays with relatives. There are better Federal reserve theologians than I and global politics may come down to how much the electorate are sick of their current politicians rather than how much they believe in the opposition’s ability to do any better. My fiancé, a dentist from Kentucky horse country, has wanted to better understand exactly what it is I do. She got more than she bargained for when I built a pivot table to help with wedding seat assignments and built a cashflow model for our household budget. She has also taught me a lot about horse racing. From what I have learned, this year could be much like a horse race. There will be lots of anxious pauses then sudden bursts of activity. Some odds on sure winers will lose and unexpected winners will emerge from behind. It is better to bet on the jockey not just the horse so invest in your people as well as your in. Most importantly, remember that even when forces beyond your control make things more difficult than you planned for, put on your blinders and run your race.