Blackstone’s chief investment strategist shares 3 reasons for optimism in 2023

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LAS VEGAS — Opportunities will arise for savvy business owners this year, and the key to maximizing their potential begins with a strong balance sheet and an embrace of dislocation, says Joe Zidle, senior managing director and chief investment strategist for Blackstone, a leading global investment business and owner of International Market Centers.

During an exclusive interview with sister publication Furniture Today, Zidle offered several insights into the economic roller coaster ride many businesses are currently navigating, along with ample reason for optimism.

During the recent Las Vegas Market, you provided a few key takeaways about the upcoming year. Can you share some of that information?

Absolutely. First, I think we’re still likely to feel the effects of higher interest rates this year because there is a lag between higher interest rates and impact on the economy, and that can put pressure on growth. But I’m optimistic because even as those higher interest rates affect or slow growth, the silver lining is household balance sheets. Seventy percent of the economy is consumption, and household balance sheets are some of the healthiest we’ve seen in our data.

Next, an additional silver lining for consumers is that the labor market is strong, and there is a 50-year low in unemployment. These are positive factors.

Finally, the hospitality and travel industries are experiencing strong demand, and as China shifts from a zero-COVID policy, global travel opens up even more. There is pent-up demand for travel and excess savings of a trillion dollars more than pre-COVID in China, so as the second largest economy in the world prepares to reopen, there are a lot of different parts of the economy that will benefit.

In your opinion, what will be the defining issues for the economy in 2023? How do you think these issues might collide or synergize over the next 12 months?

Housing is top of mind for many. There’s a confluence of a couple of different things happening in the housing sector.

First, Baby Boomers want to age in place, reducing the amount of housing turnover.

Second, we have a demographic boost of people turning 30 — Millennials turning 30 in relatively high numbers. At the same time, there has been a chronic undersupply of new homes built ever since the end of the Great Financial Crisis, which translates into a cumulative deficit of more than 3 million homes. These fundamentals make it an attractive place to invest.

One of the challenges facing the housing industry is the lack of qualified labor. How does that fit into the equation?

The shortage of labor is something that is impacting just about every industry. Across all of our portfolios that include around 250 companies and 700,000 employees, labor shortages are top of mind. The Fed forecasted unemployment to rise from 3.5% to 4.6%, 110 basis points, by year end, which it believes would be enough to bring down wage pressure.

The challenge is that 70 years of data shows us that once the unemployment rate moves up a little, it usually moves up a lot, and interest rates are a blunt instrument. Labor markets are very tight right now, and labor shortages will continue to be a challenge, but I think technology will provide some solutions that help alleviate some of the issues.

Many business owners feel that they have been in a constant pivot since 2020 and that some of the former business adages no longer apply. With that in mind, what are some of the post-pandemic adages that business owners can include in their “new normal” strategy?

Think about the lyrics from that song from the 1990s hit “Closing Time”: ‘Every new beginning comes from some other beginning’s end.’ It’s important to remember that history shows us there are always opportunities in dislocation.

First, companies should make sure they have staying power and ask themselves if they are well-capitalized with interest rates higher and less liquidity. ‘Do I have access to capital or lending to ride out the cycle?’

A lot of companies used the past few years to term out their debts. Additionally, the duration of corporate bonds is nearly the longest in history. Again, there are always opportunities in dislocation.

In what is likely to become a more challenging environment, we’ll see greater separation between strong companies and the rest in each sector, and the companies with a stronger balance sheet and a plan in place will come out stronger on the other side.

Joe Zidle is a senior managing director and the chief investment strategist in Blackstone’s Private Wealth Solutions group. He is a leading alternative asset manager with $975 billion in assets under management. Zidle previously worked at Richard Bernstein Advisors and spent nearly a decade at Bank of America Merrill Lynch. He holds a Bachelor degree in Economics and History from Emory University.

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