The Good in the Bad

Finding hidden opportunities in a horrid market

By Darryl Weng

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A new year has begun; but not without some bad news. The economic, political, and public health situations remain the same, if not worse. Ukraine’s Zelensky has called for more sacrifices in a speech to urge the Ukrainians to continue their defense against the Russians. Crude oil supply and demand have rattled policymakers. And, so, Biden now faces overwhelming budget concerns in the midst of heightened economic concerns.

All the news does not bid well for 2023’s stock market. This is a peculiar time, as, while we are hitting historical levels of bond yields, interest rates, and inflation rates, the recession isn’t exactly at rock bottom. The Federal Reserve had made an announcement alluding to interest rate hiking in 2023, which could cause 2023’s markets to plummet further than 2022’s markets. This means that corporate stocks, especially technology stocks, will continue to suffer heavy losses. For investors who still believe cryptocurrency’s volatility will bring prices back up after a crushing defeat in the stock market, they are wrong. 2023 is neither a continuation of 2022 nor a grace period. Things are about to get a whole lot worse, as 2023 will most likely be the final stretch of the recession.

But this does not mean one should avoid the markets or sell all shares now. This year will offer many elusive opportunities to survive and leech off of the market’s carcass. One of the greatest data sets that are often ignored by veteran investors is politics.

With the 118th Congress coming into session under the Biden administration, matters over America’s economy could be predictable. Biden’s first two years in the office offer clues as to how his next two years will pass by.

So far during his presidency, Biden has passed generous stimulus bills which have cost the government’s tight budget issues. One of the major issues that have come to light is the oil supply. Biden ordered the release of millions of barrels of oil out of the petroleum reserve. Biden was furious with oil companies supposedly targeting profit over increasing production for Americans. While this is certainly debatable, Biden’s actions over the petroleum reserve were a tremendously risky move for a simple political maneuver. While, in the short term, the oil price may be eased to an extent so that Americans will face less economic burden, the millions of barrels of oil are dawn to run out, causing the reserve to be in an increasingly dangerous position. This reality has come true, as the reserve is running out, and Biden has been forced to seek out other options for oil supply and restock the petroleum reserve.

These actions have been with the 117th Congress where Democratic majorities held in both legislatures. However, the 118th Congress now introduces a Republican majority in the House. With the GOP majority, committees are now forced to follow the guidelines under Republican chairs, where political tactics will be used to either stall or eliminate Democrat-sponsored bills from reaching the floor. Furthermore, it is unlikely the House will unanimously aid Biden to take the drastic measures needed to combat the oil and gas prices.

While it may be in the interest of the Republicans to introduce bills and offer bipartisan support to relieve working-class Americans from economic pressures, the current political climate does not allow this. Tensions are running high, and the GOP is surely waiting for the moment of revenge to prevent the Biden administration from continuing its agenda. This may cause a deadlock, where Biden and the Democratic Senate majority will have to compromise with the Republicans in order for both sides to achieve a smidge of their agendas.

If the GOP plays its cards right, great victories in compromises could be achieved. Not only is Biden under pressure from his own party to lower oil prices to maintain Democrat popularity, but the economic situation is forcing Biden to make a decision that will fix the oil issue. The Republicans could choose to allow Biden to take such remedial actions in exchange for key conservative agendas to go through. Even with arising political conflicts, oil prices may drop not just in the short term - also in the long term.

This is one of those elusive opportunities in the stock markets - predicting the drop in oil prices. The idea is simple: invest in the decrease of crude oil prices. Indeed, the recession is worsening. Of course, oil, gas, and other commodities prices have not eased. But, simply looking at the political situation the 118th Congress has introduced us into, opportunities in the market may be envisioned. This investment opportunity is just one amongst many, and, by deciphering the political situation into a financial one, investors may turn hidden opportunities into loot.