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PROGRAMMING NOTE: We’ll be off next week for the holidays but back to our normal schedule on Tuesday, Jan. 3.

Confidence: Remember a couple of weeks ago when Wall Street CEOs were getting all gloomy on TV about the economy? No one told consumers.

Strong labor markets and slowing inflation pushed a consumer confidence index to an eight-month high, the Conference Board announced on Wednesday. The monthly survey’s findings reflect growing optimism about the country’s economic prospects even as concerns about a possible recession linger.

Don’t read too much into that, says David Kelly, the chief global strategist for JPMorgan Asset Management.

“The sample of people that they surveyed was probably just a more cheerful bunch than the Grinches they talked to last month,” Kelly told MM late Wednesday afternoon.

To wit, Kelly and his team’s 2023 investment outlook notes that personal savings have fallen steadily over the last year amid rocketing inflation and the erosion of Covid-era relief payments. That’s leading many households to rack up debt to account for larger rent payments and a more expensive way of life.

“People needed all that extra income just to support a certain standard of living and now they’re trying to sustain it – and they can't sustain it,” Kelly said, adding that’s an indication the “economy is going to slow next year. It doesn't mean we have to have a recession, but it certainly gives [the possibility of] a recession at least a 50-50 shot.”

Paper Boys: A new report from the data provider PitchBook predicts weaker returns and a tougher fundraising environment next year for the private equity industry, which happens to be one of the most powerful lobbies in Washington (see: the surprise inclusion of omnibus language urging the SEC to redo some of the analysis behind a proposed private funds rule.)

Why is PE in for a down year? The key line in the report is on page 4: “We found that PE fund performance has been driven almost entirely by net asset value (NAV) markups as opposed to realized returns via distributions … Given the deterioration of liquidity for exits, as well as a reset in public market valuations, we think it is unlikely these PE fund markups will ever be fully realized.”

My eyes glazed over. What does that mean?: This will be (or should be) a pretty big deal for any politicians who oversee a retirement system that relies on private equity to fund retirement and health care benefits.

For the last couple of years, private equity firms have been telling their investors that the companies they had acquired were doing pretty well (generally speaking). Markets were booming and the firms valued those businesses accordingly.

If they sold, they probably returned a lot of money to their investors (U.S. private equity funds returned a record amount of money to investors in 2021, per PitchBook). If they didn’t, the window is basically closed. The returns those investments ultimately generate won’t match the value they'd previously presented to their investors (at least for a while).

That’s a problem for any investor – including a lot of public pensions – that need to see their portfolios generate cash in the next year. And it’s a big reason why a lot of institutions are selling off their stakes in private equity funds at a discount.

“There are institutions that are realistically facing liquidity restraints. Those institutions are going to have to get a bit more creative,” Carlyle Group Managing Director and Head of Research Jason Thomas told MM. “They’re facing a much more complex environment.”

IT’S THURSDAY — And the weather over the Midwest is as good a reason as any to fire up “Planes, Trains and Automobiles.” Please send tips to [email protected] and [email protected].

Q3 GDP revision will be released at 8:30 a.m. … Index of leading economic indicators will be out at 10 a.m. … The Export-Import Bank’s Board of Directors meets at 10:30 a.m.

OMNIBUS — Our Caitlin Emma and Jordain Carney: "Senators left the Capitol on Wednesday night without a critical deal allowing for votes on a $1.7 trillion government funding package, kicking the bill into Thursday and closer to a shutdown deadline. Lawmakers are at a standstill over a proposed GOP amendment tied to a Trump-era border policy, which could force Democrats to take a politically tricky vote. It’s a U-turn from earlier in the day when leadership hoped the strong pull of leaving for the holidays would speed up passage of the mammoth bill on Wednesday, checking the final item off the Senate’s year-end to-do list before the chamber departs Washington until late January."

FILE AWAY — Our Benjamin Guggenheimr: “House Democrats will keep the spotlight on their disclosure of former President Donald Trump’s tax information by taking up a bill Thursday that would require the IRS to audit presidents’ tax returns and make reports of the audits available to the public.”

FIRST IN MM: BACK TO THE ZELLE — Sen. Elizabeth Warren (D-Mass.) is demanding that Zelle’s parent company provide details on possible changes to its policy on reimbursing customers who’ve scammed into authorizing peer-to-peer transactions. “These fraud policy changes, announced months after my investigation found rampant and growing fraud and scams on Zelle, are long overdue,” Warren said in a statement to MM. “But Zelle needs to show Congress, not just tell us, that they will put in place real reforms and real transparency to protect consumers and ensure that people defrauded on the platform get their money back.” Zelle’s parent company, Early Warning Services, declined comment.

SPEAKING OF P2P — NYT’s Alan Rappeport: “A tweak to the tax code enacted last year was intended to ensure that those who use services such as Venmo, CashApp, Etsy, StubHub and Airbnb to collect money are reporting all their income to the I.R.S. … For millions of Americans, the new requirement means additional tax forms, potentially higher tax bills and a lot of confusion.”

WELCOME TO THE BIG HOUSE — From Sam Sutton: “Former FTX and Alameda Research executives Caroline Ellison and Gary Wang have pleaded guilty to criminal charges in connection to a multibillion-dollar fraud allegedly orchestrated by Sam Bankman-Fried through his crypto exchange personal hedge fund, U.S. Attorney Damian Williams announced Wednesday. Bankman-Fried, who agreed to be extradited from the Bahamas earlier Wednesday, is in FBI custody and is en route from the Bahamas to New York to face charges of wire fraud, money laundering and campaign finance violations, Williams said”

“The charges against the two — along with the disclosure of their cooperation with federal prosecutors — mark the latest twist in Bankman-Fried’s sudden fall from grace. The MIT graduate was among the industry’s most respected executives and was a regular presence in Washington as lawmakers and market regulators weighed new rules for crypto over the last year.”

THE BIG GREEN APPLE — New York Department of Financial Services Superintendent Adrienne Harris is wading into the climate wars. The banking regulator, which is among the most powerful in the country, on Wednesday proposed new guidance that would require financial institutions to “to identify, measure, monitor, and control their material climate-related financial risks.” NYDFS is soliciting public feedback on the proposal through March 21, 2023.

— The Independent Community Bankers of America has already put out a statement blistering the proposal, claiming it would subject smaller community banks to unreasonable new requirements.

IRAN — Our Kelly Garrity: “The Treasury Department on Wednesday announced new sanctions targeting Iranian officials, after two protesters were executed — one publicly — in recent weeks.”

MORE TO FALL — WSJ’s Nicole Friedman: “U.S. existing-home sales slid in November for a 10th straight month, extending a record streak of declines as high mortgage rates and home prices pushed many buyers out of the market.”

THE FOCUS GROUP HATED ‘FRIEND ZON’ — Bloomberg’s Kamil Kowalcze and Maria Tadeo: “German Finance Minister Christian Lindner urged Joe Biden’s administration to apply the principles of ‘friendshoring’ to a recent package of green subsidies that has threatened to trigger a trade war between the US and the European Union.”

THERE WERE SOME WINNERS THIS YEAR — WSJ’s Juliet Chung: “Citadel expects to return about $7 billion in profits to its clients on the back of what is expected to be its most profitable year ever, said people familiar with the firm, highlighting the banner year some hedge funds have had even as others nurse deep wounds.”

CONFIDENCE ABOUNDS — WSJ’s Eric Wallerstein and Anna Hirtenstein: “Revived consumer sentiment boosted stocks on Wednesday.”

— Reuters: “‘We're seeing a broad rally. It's been helped by upbeat corporate commentary and an improvement in consumer confidence,’ said Angelo Kourkafas, investment strategist at Edward Jones in St. Louis referring to [positive quarterly earnings from] Nike and FedEx.”

STABLECOINS — From Sam: “Top Senate Banking Committee Republican Pat Toomey has introduced legislation to regulate stablecoins, in one of his final acts as a lawmaker. The bill is intended to serve as a guidepost for future legislation to govern the companies that issue dollar-pegged digital tokens, which federal regulators have repeatedly warned could pose a risk to the financial system if left unchecked.”

DIGITAL EURO — Our Bjarke Smith-Meyer: “The European Central Bank is inclined to hand the job of distributing the digital euro to banks. The ECB outlined the front-end duties it envisions for banks in a report published Wednesday as it goes about developing design features for the digital euro.”