2023 Year End Letter

Together With Pitch Deck Guy

Welcome back!

This Newsletter/Year end letter has three key sections I’ll cover. I’m going to get into my year end thoughts, but I also have an important announcement to make near the end of the newsletter. Thanks for your reading throughout this year and I’ve got some exciting posts already lined up for 2024!

If you are newer to the Newsletter, make sure you get a chance to scroll through old posts from this year. There are several premium articles focused on career growth for younger investment and credit professionals, but some of the other articles I’d highlight are 1) My Compensation Report (We’ll drop another one in Mid March), 2) An Interview with an Anon Opportunistic Analyst 3) The Phenomenon of Finance Bros buying Blue Collar Businesses and 4) My Piece calling out the role of Social Media in the Bank Runs earlier this year.

Part I: 2024 Thoughts

Note: I typed a bulk of this prior to the Fed’s meeting last Wednesday, but believe it generally still holds true even with 75-125bps of rate cuts during 2Q-4Q of 2024. And to not to bury to lead - I don’t think there will be a recession in 2024. As a preface, and as a reminder, I’m speaking from the lens of a credit investor who spends every day looking at a bunch of highly levered companies.

Ultimately, a bunch of people (including myself) got 2023 entirely wrong. The strength in the labor market resoundingly surprised people, but there was more to it than that. Everyone was early in their thinking. This is due to how cycles historically work – we don’t get a recession/higher unemployment/consumer confidence in the dumps during a rate increase cycle – we get any of those 3 things and more during the period where rates have been high for a while and pain starts being felt across the economy as a result.

I wrote about this previously – you can read the full article here, but the gist is during the last two recessions it took the market 1.5-1.7 years to bottom once the Fed started cutting.

Truly one of the greatest powers of this platform is being able to connect a bunch of smart finance professionals (who love a good laugh about niche industry specific humor) together. This is demonstrated during the annual compensation survey, where we work together to provide insight that most credit professionals don’t necessarily get. A second really powerful thing is when I ask a question on my Instagram stories and ask you guys for your anonymous thoughts.

I asked about your 2024 outlook views and got a significant amount of interesting thoughts. I’ll break this down into some key themes:

• The majority of submissions were worried about a worsening economic environment or a mild recession in 2024, although there were a decent amount of people who believe we’ll have a soft landing. I call this out because back in late 2022, there were barely any optimistic calls for 2023.

• If things go poorly, a notable amount of people expect the Fed or Govt. to act decisively to make things okay.

• Followers are generally worried about higher default rates among the more challenged credits.

• A lot of followers ARE NOT worried about private credit. “Amend and Extend baby!”. But some followers called out how there are a lot of borrowers with <1x FCCR and some bad underwrites from a few years ago that may start running into trouble.

• The Election Year is going to add a lot of volatility to the market.

• 2024 should be an active deal flow year (just out of necessity given the lack of deal flow over the last 18 months).

• Layoffs or reorganizations will happen at Companies that got too bloated.

I found all the responses to be interesting and the common theme among credit people that some of these “zombie” companies are going to deal with serious problems resonated with me. I’m certainly in agreement, as later on in 2024 we’ll be talking about THREE years of high interest rates plus a vastly different demand environment compared to the craziness of 2020/2021. While we may see a higher default cycle, there may be a lot of liability management or other creative ways in order to improve cash flow.

I’m not calling for a 2024 recession. First, the update last week with the Fed where they’re likely contemplating ~75bps of cuts next year (the market thinks it will be more) gives merit to the case a soft landing may be achievable. But there’s more to it than that. I think it takes time for things to slow down – data typically lags. If we don’t execute a “soft landing” then early 2025 is what I’m worried about. I’m taking a conservative approach to modeling out interest rate cuts and revenue improvements within businesses that have been hit hard. I’m also spending time making sure I understand what sort of cost savings measures can be introduced to improve operating efficiencies. Unfortunately for names with structurally higher operating costs, and businesses that have already had a private equity group take a chisel to the cost structure, there’s not going to be a lot more levers to pull.

Sometimes I worry about credit professionals being overly pessimistic – we cover companies that are struggling, companies with “legacy” or “melting ice cube” offerings, while some of the equity guys are covering high growth, high multiple companies that are doing amazing. But when you’ve looked at companies or industries across public and private credit that have had a terrible 2023 during a so-called “healthy year” – you gotta wonder how much worse it could get in an even worse environment, and if everyone else is missing the leading indicators.

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Part II: We’re being a little too harsh on covid trends that have since reverted back:

NYC:

NYC generally has some long-term issues - such as taxation and cost of living; among other policies.

There was a massive push out of the city in 2020/early 2021, followed by a massive rush back as RTO took hold. The rush back has allowed us to forget about these longer term trends…but I lean with Ken Griffin on this. Even if Miami isn’t the precise solution, there’s going to be a targeted push down to lower cost, warmer, and “safer” areas.

I wholeheartedly endorse going to NYC or another large city to start your career. The larger the hub, the more higher paying opportunities, and NYC is the financial hub of the world.

I have growing disenchantment with New York City, but some of that is a function of having spent a while here now and getting older. There’s generally two types of people in NYC - 1) people who imagine themselves being here “forever” and 2) The people that are cool spending a decade here and then dipping elsewhere. I’ve realized that I’m in the camp of people who don’t want to be here in my mid 30s. The city is dope in your 20s and when you’re going out a ton, but it’s a lot less compelling to be here once you start drinking less and want more space, a backyard, etc. NYC is an inherently crammed in city – if you want some space and a yard that’s not something you’re going to get (with your own money) in your 20s or early 30s. It’s always a shell shock visiting friends in a different city that have a spacious apartment or a casually nice starter home.

I’m broadly convinced that after some time living in NYC the most compelling choice is to go live somewhere with great bang for your buck. Quietly making serious $$$ in a lower cost of living area feels like the move. But of course - just dipping to the greater NYC area suburbs could also be viable to this thesis.

I’m not here to dictate what anyone does - but generally I’ve steadily started to shift this way. Do I think NYC will get more affordable, less smelly, safer, have lower taxes, and effectively address budget issues over a 5 year, 10 year, or 30 year timeline? Nah.

Remote Work:

We’ve largely seen a retracement in remote work. Pretty much every finance bro is back in the office and even the Tech bros have been pushed back in by their overlords, despite the initial 2020/2021 pitch that being remote was going to be a massive change. With unemployment set to rise and tough budgets going into 2024, I have a hard time seeing the power swing back to labor. However, if we get rates <3% again and another boom cycle, I could very well see firms having to make concessions on remote/hybrid flexibilities. Gen Z’s stubbornness about working in person may also help - honestly we should be thanking those broccoli haired guys. However, I believe for the most part at large organizations you’re going to struggle to have an almost fully remote setup and even 3 days a week set-ups may be challenged.

I think this is a mistake by those organizations. You want as many effective workers on your team as possible and sometimes you need to cater to them with compensation and perks such as remote/hybrid flexibility. Here’s the deal though: Effective workers are going to be effective regardless of their surroundings. Workers that slack off are going to slack off regardless of their surroundings. I firmly believe this. I’ve been working around the clock during most of the back half of this year and I assure you the work environment didn’t matter. I’ve cranked out all my newsletter writings from my Manhattan apartment. When I travel around or go to my parents’ place, I’m still able to effectively crank out work when I need to. Once you dial in and then get some EDM music pumping, you can crank out work from at home setup incredibly easily.

But no, large organizations with dozens of useless middle managers aren’t going to change this. Larger organizations are full of paper pushers who waste up to 3 hours a day commuting, while smaller and more nimble organizations will want to take advantage of a larger, more talented labor pool by offering remote flexibility. You see this first hand with beehiiv, the newsletter platform High Yield Harry’s Newsletter runs on. They’re a highly effective organization that ships new offerings with insane speed and is valued north of $50mm. Sure, it probably makes sense for some people to always be in person and to meet up with the people you work with every once in a while, but it’s crazy how quickly we u-turned on how connected the world is. At work, we’ll dial into calls and meet people virtually all the time, but no one thinks “Why are we doing this from an office I commuted xyz hours to as opposed to a home office?” The push to return to office is a weird denial of how connected we are now online. It’s truly hard to measure how much opportunity has been opened on my end by making online connections – I’d happily rather ride on the connected world than ever return to the office 5 days a week.

Part III: The Meme Account and an exciting announcement:

I started High Yield Harry back in July 2020 when I was really bored during covid-19 and saw the incumbent meme accounts I loved were starting to post a lot less. I love those guys. Starting the account worked out really well, I’m able to connect with a lot of smart people with common interests. It was a very slow build – on Instagram I went from 16k followers a year in to now 110k followers almost 3.5 years in. On Twitter, I went from 9k followers at the end of 2021 to 85k followers now after 3.5 years on Twitter. I think the account growth is pretty mature at this point. The bulk of the people following this account are in finance or are into investing. A niche finance meme page isn’t going to appeal to Main Street. I do wonder sometimes though “Jeez how many people that follow me are actually in Credit?” There are only so many credit professionals, bankers, private equity, and public equity folks out there.

It's a bummer how the finance world meme has changed, with a lot of accounts quitting and it being pretty much impossible to start a new account and grow it. This pretty much means the finmeme accounts that are big now are here to stay (unless they eventually sell to new hands - more on that in a bit).

It sucks that the Instagram finance meme world is getting more lonely. This has really proliferated during 2023.

I like posting memes more so about current events, especially when something crazy happens. I think that’s when the best memes come about, but I gotta remember to challenge myself in 2024 to get some new templates and videos out there to spice things up. I don’t want us all to be in a meme-cession when there isn’t a cringe Blackstone holiday video, OpenAI drama, a bank blowing up, or some other crazy current going on.

M&A News

In light of the changes in the meme landscape, I’m excited to announce that I have completed a transaction of the well known social media brand, Wall Street Confessions.

Yes, acquisitions of social media brands are a thing, for anyone wondering.

A big round of applause to Ri Sharma, the Founder of Wall Street Confessions for what she built and for her exit. She was great to work with throughout the process and you can follow her on Twitter here.

As the Wall Street Confessions brand enters its next stage of growth, I’m looking forward to opening up the dialogue to the Finance community and to give you an avenue to voice your concerns about the darker side of the industry, as well as the opportunity to submit something relatable or funny that you “overheard”, or that’s a confession. You can make anonymous submissions here and please make sure you follow the Instagram account here.

More details to come as I look to reignite the conversation.

Lastly, as many of you know, I’ve tried my hand with a Fantasy Football Newsletter called Down To Football.

I’m obviously very obsessed with finance (and hopefully somewhat good at it), but I’m also obsessed with watching the NFL and am very good at Fantasy Football (1st place in both my leagues right now), so it made sense as a new vertical to enter. It’d be hard for me to do anything else beyond Finance & this new vertical, mainly due to time commitments but also cause I want to stick and zone in on what I’m good at.

Growing the Football Newsletter has been a little slower than I would like, but I’m really excited about the form it can take next year. I think the issue is mainly that Fantasy Football participants aren’t consuming news the same way that folks signed up for Morning Brew or Exec Sum are consuming news. There should be more Sports focused newsletters that give you the rundown the same way these daily business newsletters do. So I think we’re early innings there, and this newsletter doesn’t need to be massive, it just needs to carve out a small section of a very large TAM.

Next June I’ll get back into my deep fantasy football analysis and reading, so I hope you sign up here so you can get on board for next season.

To recap the year, here’s my favorite meme of the year:

Ratio-ing Chamath:

Other Items:

• Want to learn about equity investing? The guys at The Investor’s Podcast have a 49-lesson course offering that answers all your questions about jumping into the world of equity investing. Learn more here.

• Credit Jobs: I’m going to try to start including credit jobs I see online in my email. Here’s two I noticed: 1) AXA is hiring an IG Credit Analyst, located in NYC or Greenwich, details here and 2) Golub is hiring an Associate in their Credit Opportunities group in Chicago, details here.

• Btw, I’m working on better understanding reader demographics so I can best serve you all. If you have 30 seconds for this survey below it’d be really helpful:

That concludes my year-end letter. Let’s get after it.

Best,

Harry