What could happen in 2023? More rate hikes, climate action and China stumbles
New Year’s predictions are a fool’s game, certain to be undone by events unexpected in January (like Putin’s invasion of Ukraine.) But I’ll play the fool, and take a stab:
—Mr. Market has it wrong. The idea that interest rates are near their peak defies history. There is no precedent or theory supporting the notion that you can conquer inflation with interest rates below the rate of inflation. And Jay Powell won’t cave. As my friend Greg Ip puts it: Every central banker wants to be the next Paul Volcker; no central banker wants to be the next Arthur Burns. I won’t be surprised if the Fed funds rate passes six percent this year. And that portends a tougher economy than most expect.
—When it comes to the battle against climate change, I’m an optimist. That’s not because of regulatory schemes, but because of the magic that comes from adding, as Abraham Lincoln put it, “the fuel of interest to the fire of genius.” Many of the best business minds I’ve spoken with in the last year are clearly focused on this problem, and self-enrichment is now driving their efforts as much as salvation of the planet. That’s a recipe for success. Look for important climate technology breakthroughs this year.
—The Chinese century may end before it begins. China’s ascendance has been widely predicted since the turn of the millennium, and some have cited our Fortune Global 500 list to argue it has already arrived—there are now more Chinese firms on the list than U.S. firms. But precious few of those are world class, and some that are have been hobbled—think Alibaba and Tencent, reined in by Xi’s regulatory policies, or Huawei and ByteDance, crimped by fears of Xi’s geopolitical ambitions. Add to that China’s mismanagement of COVID—lurching from overregulation to a frightening experiment in herd immunity—and the myth of Chinese ascendancy gets punctured. (By the way, given last year’s remarkable breakthroughs by Open AI, will anyone still argue that China leads in that technology?) One footnote to this story: a stagnant superpower may be more dangerous on the world stage than an ascendant one, as Putin has demonstrated.
—Technology has taken a turn. We all began last year thinking the value of AI was to create “Prediction Machines,” as author Ajay Agrawal called it, and that crypto-technology would power a new version of the Web. But in the final months, crypto imploded and we were awakened to the amazing power of “generative AI” to create art, text and computer code. That means business visionaries need to return to the drawing board and rethink their view of the future. One clear takeaway: Instead of more people who can write computer code, we need more people with the wisdom to ask the right questions and scrutinize the results.
—And finally, a hope, if not quite yet a prediction. I think there’s a chance a badly broken U.S. political system will begin a slow, stumbling turn for the better. (It’s always darkest before the dawn.) I’m encouraged by things like Alaska’s ranked-choice voting experiment, Nevada’s embrace of the same, and New York’s court-ordered redistricting—all suggesting a path toward a system that reengages the sensible center, the majority of U.S. citizens—in the election process.
Separately, GE HealthCare begins trading as an independent company today—step one in a three-way split of what remains of General Electric. The CEO of the new company, Peter Arduini, spoke with CEO Daily yesterday and addressed why he thought his company would do better as an independent firm, beginning with what it will mean to his employees:
“This is one of the largest spins in history. A $18 billion start-up. People are quite energized to rethink how we do things.”
Arduini began his career at GE back in 1990, before leaving to work for Baxter and other health care firms, then returning last year. Asked if it ever made sense to have a health care company, a jet engine company, and a power turbine manufacturer (not to mention a massive financial services company) all lumped under the same corporate umbrella, he responded:
“From the management philosophy and the training and elevation we did at Crotonville, there were clearly some synergies. But when you get outside of how you grow leaders, it gets a little nebulous. And we (GE HealthCare) were always a little separate.”
China COVID tests
Beijing is accusing governments imposing COVID travel restrictions of "manipulating pandemic measures for political goals" and is threatening to reciprocate. Countries like the U.S., Japan, Australia, and Italy, worried about unreliable Chinese COVID data and the threat of new variants, are now requiring negative test results for anyone arriving from China. More restrictions may be coming, as the European Union considers pre-flight testing for flights from China. The White House, for its part, says its measures are based on "public health and science," and that "there’s no cause for retaliation." South China Morning Post
Still no Speaker
The U.S. House of Representatives tried, and failed, three times to elect a new Speaker of the House on Tuesday. Representative Kevin McCarthy (R-Calif.) is now 20 votes short of the needed majority to become Speaker, as members of the House Freedom Caucus demand concessions from House Republican leadership. It's the first time a Speaker nominee hasn't won on the first ballot since 1923. Without a Speaker, the House can't swear in members or establish committees—and an extended election battle could have other consequences, like delayed paychecks for House staff. McCarthy is staying in the race for now, and the House will reconvene at noon Eastern Standard Time to try again. Associated Press
Tesla shares fell 12.4% on Tuesday in their worst day of trading since September 2020, following fourth-quarter deliveries that came in below Wall Street expectations. Shares in the electric car company had a terrible 2022, sinking 65% over the year. The company's market capitalization—which surpassed $1 trillion last year—is now just $339 billion, below ExxonMobil, Nvidia, Tencent and LVMH (whose CEO Bernard Arnault is now the world's richest person, beating Tesla CEO Elon Musk). Bloomberg
AROUND THE WATERCOOLER
The Crystal Ball: VCs, private equity investors, and tech founders predict M&A activity for 2023, by Jessica Mathews and Jackson Fordyce
This edition of CEO Daily was edited by Nicholas Gordon.
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