That Was the Year that Was

2022 was a year full of surprises.” – The Lonely Realist

In geopolitics, 2022 was war’s comeback year. Russia’s invasion of Ukraine ended an era of declining military violence and followed an unprecedented 77 years of European peace. And, yet, despite every expectation of a quick Russian victory, the Ukraine War became a Russian debacle that many forecast will spell the end of Vladimir Putin. What will 2023 bring for Russia and Ukraine?

A somewhat different surprise jarred Xi Jinping after the October celebration of his self-selection to an unprecedented third term as Chinese President. He was forced to walk-back abandon his zero-COVID policy in the face of increasing public pressure, a sudden turnabout that no one had predicted. Xi’s forced retreat from Statist centralized management stands in sharp contrast to America’s continued slide into Statist policy-making, a subject of concern to TLR throughout 2022. Xi now also is facing further resistance to his East China Sea military aggressions with Japan increasing its defense posture in an explicit challenge to Chinese militancy.

Rounding out a year of surprises for The Axis of the Sanctioned, Iran unexpectedly encountered a citizens’ uprising when it used excessive force to enforce a strict religious dress code. That uprising will consume Iran in 2023.

Not only is war back, inflation also is back …, triggered not only by Russia’s invasion of Ukraine and the resulting squeeze on oil and gas prices, but by a potpourri of long-term lax monetary and fiscal policies coupled with supply, demand and labor pressures. A notable example of the surprise factor was the reversal of the “inflation-is-transitory” refrain voiced by the Federal Reserve only a year ago. The consequence has been that America’s Consumer Price Index soared above 7% in 2022 despite seven Fed interest rate hikes (where only 3 had been expected last December). Moreover, both the Fed and market pundits missed the negative impact on 2022 GDP growth. These economic surprises led the stock market to suffer its worst year in more than a decade (as TLR had projected last January), falling ~20% after analysts at the end of 2021 were confidently predicting gains, puncturing bubbles ranging from Fang stocks to SPACs. Is the foregoing a sign that R.I.P. TINA has run its course … or does it portend a continued collapse in share prices? Cassandra (true to form) has predicted more pain.

Ponzis also were back, demonstrated by 2022’s Crypto Collapse (as TLR cautioned here and here). That Collapse has more room to run in 2023.

Political surprises once again were back in 2022. Instead of a Red Wave at America’s November midterm elections, there was barely a Red Ripple (due in part to the Supreme Court’s decision in Dobbs). Some believe this to be a foretaste of moderation among American voters, although TLR deems that to be starry-eyed optimism given the heat at both ends of the political spectrum. Tribalism will not burn itself out in 2023.

Tribal heat unfortunately is likely to increase following the release of the January 6th report by the Congressional Committee that investigated the January 6th insurrection …, and increase further with the release of President Trump’s tax returns. Both are intended to pressure the Justice Department into taking legal action against the former President. Although TLR believes the legal analysis to be clearly framed, both releases raise moral and cultural questions that neither America nor Americans have previously addressed. The Congressional Committee report is laser-focused on the former President to the exclusion of scores of Federal and State officials who supported or enabled him, a decision that in itself raises moral and cultural questions.

Another bucket of surprises can be found in the actions taken by Elon Musk, “21st Century’s Thomas Edison.” Ignoring his flagrant violations of American securities laws (which TLR finds it difficult to do), Musk first contracted to buy Twitter …, then fought tooth-and-nail to breach his contract …, but when legally-cornered bought Twitter, taking it from public to private ownership so that he could oust a Twitter team that he asserted was denying users their Constitutional rights …, then excluding journalists who were expressing their First Amendment rights …, and then reversing himself to allow journalists’ tweets …, but then banning Twitters’ competitors …, then reversing himself once again …, all the while maintaining that he had purchased Twitter to further American values … while spending full-time managing Twitter to the exclusion of his fiduciary duties to shareholders of Tesla, SpaceX and his other widely-owned businesses … including by selling Tesla shares despite his previous promises not to do so …, all the while ignoring the fact that Tesla investors were rebelling …, a series of actions that have been amusing for onlookers … though not so amusing for Tesla shareholders and former employees and service providers of Twitter to whom Musk continues to refuse to pay contracted-for compensation.

Yet another surprise was the strength of the US Dollar, climbing more than 20% during the first 9 months of 2022. It has since dropped ~10% (as TLR warned in September). A recurrent TLR theme has been the importance of the Dollar to America’s well-being. As the world’s reserve currency, the Dollar anchors America’s “exorbitant privilege,” a privilege that will be sorely tested in 2023 (noting December’s surprise shift by the Bank of Japan away from tight yield curve control).

2023 will be a challenging year on any number of levels. Despite pundits’ confident year-after-year December predictions, annual surprises have become the norm. Predicting the future requires superhuman ability …, and no pundit is gifted with the ability to see into the future. Moreover, today there are more variables than ever before. We indeed are living in interesting times.

Oh, by the way, keep an eye on ChatGPT. It provides another window into changes to come.

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Finally (from a good friend)

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