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Hudson Glade Insights: Things Are Not Always As They Seem

Hudson Glade Insights: Things Are Not Always As They Seem

January 26, 2023

As we were planning for 2023, we believed it was important to put 2022 in context.  As of last October, a 60/40 allocation between US stocks and Treasuries was down more than in any year since 1937.  With that reality ever present, the constant drumbeat we heard was that of an approaching recession getting closer and closer with each passing Fed Funds rate increase.  Increasing layoff announcements were only adding to the din.  In an environment such as this, it is understandable why the mood of many coming out of the holidays was so dour.  It seemed clear to “everyone” that conditions were not returning to “normal” any time soon, but worse, a recession was on the horizon.

Well, it seemed clear to everyone but Hudson Glade.  In speaking with members of our Executive Advisory Council, CEOs of multiple businesses and many other executives across our focused industries, we were hearing a different story.  Supply chains were improving, shipping and raw material costs were falling, and end market demand was solid.  Many executives were in fact expecting a return to “normal business” in 2023.

At Hudson Glade we strive to see through the noise and focus on the overarching trends impacting companies and their management.    Yes, wage pressure remains a challenge, but we have long believed wage pressure was going to be a story for this entire decade.  Simply stated, wage escalation is driven by demographics.  The lack of working aged people relative to retiring baby boomers is only going to keep wage benefits accruing to those who remain in the workforce.  As of early 2020, the prior decade saw the non-working-age population – those aged 0 to 14 and 65 and older – grow by 13.1 million, a 12.9% increase, while the working-age population increased by a modest 6.4 million or 3.1%.  COVID-induced workforce changes likely only accelerated the trend.  Businesses and investors must be prepared for continued wage pressure unlike anything experienced for over a generation.

In early 2022, we highlighted our concern about a rapid dwindling of the reported excess consumer savings.  As we enter 2023, we do not believe much has fundamentally changed.  After likely falling by an estimated $100 billion each month since last summer, excess consumer savings across the economy will be largely exhausted by this summer and the personal savings rate is falling and approaching 2%.  While savings and the savings rate are well below levels during the height of the pandemic, both are simply returning to levels that existed prior to the pandemic with upper-income households holding most of any savings (as they usually do) and driving the bulk of the spending on non-essential goods.  As such, we continue to look more favorably upon businesses with pricing power, stable customer end markets, and reoccurring demand drivers.  We also note that the upper 20 percent of households typically account for about 80 percent of spending in sectors such as leisure and hospitality.  These households have the desire and the resources to continue their spending on services and products they desire.

Lastly, with almost 10% of office capacity hitting the market in 2022 and almost triple that coming to market in the next three years, we expect pessimism about commercial real estate will persist for a few years, but we don’t expect property owners to simply abandon and mothball their space.  We expect them to continue to invest in their buildings and make them more attractive and up to date from a technology and usability perspective.

In short, while we clearly don’t expect it to be all sunny skies over the coming months, we do believe things are better than “everyone” believes.  If you think you have opportunities that might benefit from the trends and conditions we highlight, we look forward to hearing from you.  Should you want to discuss anything mentioned herein further, please do not hesitate to reach out.


This Insight expresses the views of the authors as of the date indicated and such views are subject to change without notice. Hudson Glade LLC (“Hudson Glade”) has no duty or obligation to update the information contained herein. Further, Hudson Glade makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.

This Insight is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Hudson Glade believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.

This Insight may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Hudson Glade.