January
$3T club: The first trading day of 2022 resulted in a historic day for the U.S. stock market as Apple (AAPL) became the first company in history to reach a valuation of $3T. The tech giant crossed the market cap milestone in afternoon trading, with shares climbing nearly 3% to $182.88 apiece. Lifting investor confidence was the belief that Apple will keep launching best-selling products as it explores new markets like self-driving electric cars and augmented-reality glasses, though sentiment soured not too long after as tech got wrecked.
End of easy money: Just a day later, a new era of monetary policy hit investors in the face following previous estimates that any tightening would be limited and gradual. FOMC minutes showed that officials were fully on board with a faster scale back of the central bank’s asset purchase program, which would give it greater flexibility to raise interest rates (that commenced in March). Stocks tanked on the news, with the Nasdaq ending the day down more than 3% for the worst start to a calendar year since the financial crisis.
New era of transplants? In a last-ditch effort to save his life, doctors at the University of Maryland Medical Center transplanted a genetically modified pig heart into patient David Bennett, a 57-year-old handyman from Maryland. He died two months after the highly experimental procedure, but the medical community hopes the xenotransplantation surgery will one day pave the way for endless supply of organs. Several biotech companies were involved with the endeavor, including United Therapeutics (UTHR) and Kiniksa Pharmaceuticals (KNSA).
Game over? Microsoft (MSFT) made headlines by announcing the $69B acquisition of Call of Duty maker Activision Blizzard (ATVI), which would be the biggest deal in its history and more than 2.5x what it paid for LinkedIn five years ago. It would also make Microsoft the world’s No. 3 gaming company by revenue and result in the tech industry’s largest-ever takeover (topping Dell’s (DELL) $67B purchase of EMC in 2016). The FTC later sued to block the deal in December, so prepare for a drawn-out legal battle that might include precedent of so-called vertical deals, whether withholding games from platforms would be profitable and if Microsoft has made good on its past promises.
February
Free speech vs. misinformation: Spotify (SPOT) went into damage control mode as listeners, creators and shareholders found themselves on different sides of the fence on what to do about controversial content on its platform. The straw that broke the camel’s back was a podcast featuring mRNA virologist Dr. Robert Malone on the show of popular host Joe Rogan, who signed a reported $100M deal with Spotify back in 2020. Citing “vaccine misinformation,” Neil Young, Joni Mitchell and Nils Lofgren pulled their music from Spotify in response, while calls to boycott the platform grew on social media. Spotify eventually included a disclaimer to any podcast episode that addresses COVID-19 to pacify both sides of the debate.
$30T and counting: America’s national debt topped $30T for the first time, marking a record amount of red ink (the figure hit $31T in November). The gloomy fiscal milestone added to worries about the long-term economic health of the country, as it grapples with red-hot inflation and a higher interest rate environment – and can make servicing the debt even more challenging. Other factors like an aging population, elevated healthcare costs, and a tax system that doesn’t bring in enough revenue to cover spending are also worrying as the federal government kicks the can down the road.
Freedom convoys: Border crossings between the U.S.-Canada were blockaded by truckers, building on the “Freedom Convoy” movement protesting vaccine mandates and other coronavirus restrictions. Tensions began when Canadian trucker vaccine mandates kicked in on Jan. 15 but spilled over into the U.S. after an American ban followed shortly thereafter. The demonstrations disrupted production lines and supply chains, and even shut down the plants of automakers like Ford (F), General Motors (GM) and Stellantis (STLA).
It’s war: Financial markets went on a roller-coaster ride on Feb. 24 as traders monitored the latest happenings in Ukraine. Russia used air, land and naval forces for an invasion that shocked the world, and while Western intelligence officials warned that Kyiv would fall to Russian forces in just days, the Ukrainians are still holding strong in what became one of the biggest developments of the year. WTI crude oil surged to $130 a barrel for the first time since 2008, before dropping back to trade near the $90 level, while U.S. gasoline prices started to ascend rapidly to eventually hit an average of $5.00 per gallon nationwide.
March
Sanctions smackdown: Financial fallout from the crisis in Ukraine escalated rapidly, along with an intensification of violence and battles throughout the country. Western sanctions sent the ruble into a nosedive, with the currency tumbling 30% to an all-time low versus the dollar, before recovering. Russia’s central bank more than doubled its key interest rate to 20%, freed local bank reserves to boost liquidity and banned Russian residents and companies from transferring foreign currency abroad. Meanwhile, the Moscow Exchange closed for nearly a month to shield stocks from a brutal selloff.
Nickel crisis: Things also got crazy in commodity markets as prices went into overdrive. The London Metal Exchange was forced to suspend all trading in its nickel contracts (LN1:COM), as the cost of LME three-month nickel – the key pricing benchmark for the global physical supply chain – shot up to $101,365 a ton, up from $30,000 just sessions earlier. China’s Tsingshan Holding Group, the world’s biggest producer of nickel used in stainless steel and EV batteries, made a sour nickel bet by building up a massive short position, only to face an influx of margin calls and $8B in paper losses.
Fast exit: Western food diplomacy was one of the first things that flourished in Russia after the Iron Curtain fell in 1989. In fact, the following year’s opening of the first McDonald’s (MCD) in Moscow’s Pushkin Square came to “symbolize the entire opening of the USSR to the West,” according to Marc Carena, former managing director of the company’s Russian operations. Three decades of investment in the country came to an abrupt end following the invasion of Ukraine, with the Golden Arches becoming the most prominent company to close (and then sell) all of its locations in Russia. It followed millions of dollars in foreign direct investment, with a network of 850 restaurants and 62,000 employees.
Recession risk: The yield on the 2-year Treasury briefly exceeded the 10-year for the first time in three years, in a warning sign that the coming Fed rate hikes would trigger a recession. A technical recession did eventually occur in the summer, but employment stayed intact and U.S. GDP grew again in Q3 (many are still wondering if a deeper recession is in store for 2023). The 10-year Treasury went on to hit highs of over 4.20% in October, while the spread on the 2s10y even reached 80 basis points at one point as the yield curve inversion deepened throughout the year.
April
Tapping more reserves: The White House announced plans to release around 180M barrels of oil from the Strategic Petroleum Reserve, in what became the largest release from stockpile since it was created in 1975. The decision saw 1M barrels released daily over the course of six months, but analysts are still debating the benefits and whether it was responsible for putting a dent in inflationary. Two other mega releases of 30M and 50M barrels were coordinated in the previous six months, while the Biden administration later announced plans to refill the SPR at between $67-72 per barrel, after reserves fell to their lowest level since 1984.
Tweetstorm: Bringing the social-media activist (and troll) inside the company fold, Twitter (TWTR) appointed Elon Musk to its board following a drama-filled fest that continued throughout the year. The announcement followed weeks of discussions between Musk, Twitter CEO Parag Agrawal and independent board chair Bret Taylor, as top brass learned that the Tesla (TSLA) CEO was accumulating a 9.2% stake in the platform. Musk eventually made a $44B offer for the company, which he was forced to abide by despite many attempts to wiggle out of the deal. Who will be Twitter’s CEO in 2023?
Taking flight: The first commercial drone deliveries in the U.S. hit the skies as Alphabet’s (GOOG, GOOGL) Wing unleashed its aircraft over the suburban towns of Frisco and Little Elm, which are located just north of Dallas, Texas. If successful, the service could revolutionize how goods are currently transported around cities. Walmart (WMT) also rolled out a drone delivery program for items like diapers and dinner ingredients, while Amazon Prime Air (AMZN) joined the pack in December.
King dollar: The greenback reached its highest level in two decades, outpacing many assets from stocks and bonds to gold and bitcoin. Strength in the dollar was seen as the world stayed far behind matching the Fed in interest rate hikes, as well as concerns about economic growth and weaker comparative currencies. The euro remained on the back foot due to the war in Ukraine, China’s severe COVID restrictions led to a weaker yuan, and Japan’s widening policy and trade gap sent the yen into freefall this year.
May
Overturned: In a rare breach of tradition and secrecy, the U.S. Supreme Court voted to strike down the landmark Roe v. Wade decision, according to a leaked initial draft majority opinion that was later confirmed. Corporate America got involved, with Amazon (AMZN), Apple (AAPL) and others promising to reimburse employees if they travel out-of-state for abortions. Companies like Levi’s (LEVI) and Yelp (YELP) even called on business leaders to take a stand against the ruling, while Live Nation (LYV) said it would cover bail expenses if any of its employees were arrested for protesting peacefully.
Formula shortage: The White House announced a raft of measures to alleviate a baby formula shortage after President Biden spoke with the CEOs of Walmart (WMT), Target (TGT), Reckitt (OTCPK:RBGLY) and Gerber (OTCPK:NSRGY) to explore ways to tackle the crisis. Things worsened after Abbott Nutrition (ABT), the nation’s largest baby formula manufacturer, shuttered its production facility in Sturgis, Michigan, following reports of contaminated formula that was linked to the deaths of at least two infants. Many stores even implemented quotas on how much formula one person can buy at a time, while pediatricians recommended not to dilute formula (which could be harmful to the kidneys) or switching to other brands.
Crypto trouble: Cracks started appearing in the crypto market as stable coin TerraUSD (UST-USD) lost its dollar peg and sister token Luna (LUNA-USD) crashed to $0. The not so stable “stable coin” was a DeFi harbinger of things to come, with Celsius, one of the largest crypto lending platforms, pausing all withdrawals a few weeks later due to “extreme market conditions.” Don’t forget the bankruptcies of crypto hedge fund Three Arrows Capital and crypto lender Voyager Digital.
NATO expansion: Joining Finland in its recent quest to join NATO, Sweden broke a nearly 200-year policy of military neutrality formed in the aftermath of the Napoleonic Wars. The governing Social Democratic Party approved an application to join the alliance, but expressed reservations against the deployment of nuclear weapons and foreign bases on their soil. The European Commission, the executive arm of the EU, also unveiled new sanctions on Russian energy, including a phase-out of crude oil imports within six months and refined products by the end of the year.
June
Go big or go home: 75 basis points became the new 50 basis points as Jay Powell and Co. started to show their aggressive side. In what was unthinkable just months earlier, the Federal Reserve hiked rates by a whopping three-quarters of a percentage point for the first time since 1994, and went on to do so again at three of its next policy meetings. By the end of the year, the Fed Funds Rate soared to a range of 4.25%-4.50%, while Powell vowed to “stay the course [on countering inflation], until the job is done.”
Up in smoke: The FDA ordered JUUL products off the shelves in the U.S., dealing a major blow to the once high-flying company whose products “played a disproportionate role in the rise in youth vaping.” Marlboro owner Altria (MO) bought a 35% stake in Juul for $12.8B in late 2018 to diversify its portfolio and to join forces with a company that was threatening its traditional cigarette business. Things didn’t go so well, with the FDA banning flavored e-cigs in 2020, prompting JUUL’s market share to tumble from 70% to 42%, and then to 36% as of March 2022. Altria most recently valued its JUUL stake at $1.6B, an eighth of its original investment, and that was before the FDA threatened its entire U.S. business.
Discretionary spending: Retailers were caught off guard as spending habits of Americans changed rapidly in an unrelenting inflationary environment. Consumers shifted away from higher-margin goods such as kitchen appliances and TVs to basics like food and toiletries, and emphasized a focus on value and affordability. In response, companies like Target (TGT) announced a series of steps to “right-size” inventory for the balance of the year, such as additional markdowns and order cancellations, but its stock remained under pressure as higher costs whacked profitability.
Forced default: Russia defaulted on its foreign debt for the first time since the Bolshevik Revolution after a 30-day grace period to disburse two Eurobond interest payments expired. It was a largely symbolic move given that the Kremlin had enough money to pay off the debt, but was barred from doing so because of the heavy Western sanctions leveled on the government. The U.S. Treasury Department effectively blocked Moscow from making the payments after letting a sanctions loophole expire that had previously allowed it to transfer cash to debtholders via American banks.
July
Inflation nation: The Consumer Price Index peaked at an annual clip of 9.1%, marking the fastest pace of inflation in four decades. At the time, the central bank said it didn’t want to risk more entrenched expectations, and continued to hike rates by 75 basis points (there was even talk of a 100-bps increase at one point). “These rate hikes have been large and they have come quickly, and it’s likely that their full effect has not been felt by the economy,” Fed Chair Jay Powell declared at the monthly FOMC meeting.
Oil for security: With an energy crisis playing out at home, President Biden traveled to Saudi Arabia to reassert America’s presence in the Middle East. The trip was a big policy U-turn for Biden, who has previously labeled the Kingdom a “pariah” and refused to talk with Crown Prince Mohammed bin Salman in the aftermath of the killing of U.S.-based columnist Jamal Khashoggi. There was an apparent understanding that the summit and a notable fist bump would lead to additional Saudi crude production, but Riyadh later scrapped a paltry boost to OPEC+ production, and even deepened its cuts by a whopping 2M barrels per day, or about 2% of global supply.
The housing story: The overheated U.S. housing market started to cool down in what some in the industry called a real estate shakeout. Sales of previously owned homes fell 5.4% M/M in June to 5.12M units, according to the National Association of Realtors, and were 14.2% lower when compared to the same month a year ago. At those levels, sales fell to their slowest pace since June 2020, when buying activity dropped briefly at the start of coronavirus pandemic.
Revolving door: Things got crazy over in the U.K. as Boris Johnson stepped down from his role as U.K. prime minister. It followed increasing pressure to resign after a series of scandals, including “Partygate” and allegations of misleading the public over the appointment of former deputy chief whip Chris Pincher. A disastrous mini budget from Liz Truss sent the pound to near parity with the U.S. dollar, and she was only in office for 44 days before Rishi Sunak took the reins on 10 Downing Street.
August
Inflation Reduction Act: After more than 15 hours of amendments and a “vote-a-rama” session that stretched over an entire weekend, the U.S. Senate narrowly passed the Inflation Reduction Act. The measure – which aimed to cut government deficits and consumer medical bills while boosting climate spending – gave President Biden a legislative achievement ahead of midterm elections, and another win for his economic agenda after Congress pulled through on the Chips for America Act. The bill somewhat embodied earlier incarnations of the Build Back Better plan, albeit with a price tag of around $430B (in place of $3.5T, and a revised version of $2.2T).
The Office: While Apple (AAPL) attempted to get its employees back to the office, other companies gave up on their brick-and-mortar institutions. Lyft (LYFT) said it would rent out nearly half of its office spaces in New York City, Nashville, San Francisco and Seattle, as it doubled down on a “fully flexible” work policy. In fact, the average workplace occupancy rate in the top-10 U.S. metro areas hit 43.5% in July, down from over 95% before the pandemic began, according to Kastle Systems, which collects daily data on how many workers swipe into office buildings.
Dire straits: Taiwanese leader Tsai Ing-wen greeted U.S. House Speaker Nancy Pelosi at the presidential office in a high-stakes visit that enraged Beijing. Pelosi reaffirmed a pledge that the U.S. wouldn’t abandon Taiwan, saying solidarity was more important than ever in a “world [that] faces a choice between autocracy and democracy.” The two also discussed deepening economic cooperation and supply chain resilience, while the White House sought to distance itself from the visit and emphasized that the trip does not signal a change in its ‘One China’ policy. Beijing responded with live-fire military drills and sanctions on Taiwan.
Revving the QT engine: Fallout from the economic symposium in Jackson Hole dented a summer rally for the markets, while investors had their eyes on more drama stemming from the central bank. The Federal Reserve began to raise the throttle of its quantitative tightening program by picking up the pace at which it unwinds its balance sheet. The move was a stark reversal of pandemic-era bond buying, which saw the central bank nearly double its balance sheet to nearly $9T from $4.2T over the past two years.
September
Energy shocks: European energy ministers convened in Brussels as an energy crisis deepened across the bloc ahead of the winter. A toolbox of measures was created that included government support, price caps and windfall revenues, while rationing and trading suspensions were also discussed. Elsewhere, EU member states rushed to complete an eighth round of sanctions as Vladimir Putin announced a “partial mobilization” that conscripted as many as 300,000 troops, while Russia stopped pumping gas through Nord Stream 1, before the pipeline system reported extensive damage that authorities classified as an act of sabotage.
The Merge: The crypto community celebrated a big milestone for the Ethereum blockchain, which transitioned from the proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model. The move aimed to reduce the power needed to secure Ethereum by around 99.95%, easing the concerns of those worried about the environmental impacts of crypto (Ethereum currently emits as much carbon as Singapore and its total energy consumption is similar to the Netherlands). ETH (ETH-USD) issuance also decreased (a.k.a. Triple Halving), while industry players further decentralized the network by securing Ethereum at home, taking some control away from the institutions and sophisticated miners.
‘Working on the Railroad’: Railway unions finally came to a tentative labor agreement that would avert a damaging strike, which was set to cost the U.S. economy an estimated $2B per day. The Association of American Railroads said the deal would give rail employees a 24% wage increase during the five-year period from 2020 through 2024, as well as an immediate payout that averages around $11,000, but the contract was later rejected by staff due to sick-leave policies. Congress acted quickly to bind rail companies and their employees to the previous settlement to “avoid the impending, devastating economic consequences for workers, families, and communities across the country.”
Downsizing: The slowdown in tech went on full display after Facebook parent Meta Platforms (META) announced plans to reduce headcount for the first time ever. The social network went on to shed 11,000 jobs, or about 13% of its staff, amid an advertising slump that was exacerbated by Apple’s (AAPL) iOS privacy changes. Meta is also waiting for its big investments in virtual reality (Oculus), the metaverse (Horizon Worlds) and short-form video (Reels) to bear fruit, as growth peaks across Facebook, Instagram, and WhatsApp. With macroeconomic headwinds present elsewhere in the sector, “tech layoffs” materialized into one of the big themes of 2022.
October
Brace for impact: The cleanup from Hurricane Ian wasn’t pretty, and it was the worst of what became one of the costliest Atlantic hurricane seasons on record. Floridians were urged to evacuate before Ian crashed into Cayo Costa as a Category 4 hurricane, with storm surges reaching as high as 18 feet in some coastal areas and wind speeds of up to 155 mph. It ultimately led to 157 fatalities, 146 of which were in Florida, as well as extensive infrastructure and property losses, with insured damages valued at $50B-$65B.
‘Bird is freed’: A new era at Twitter (TWTR) translated into new leadership and Elon Musk was quick to update his platform bio to “Chief Twit.” The billionaire finally completed his $44B acquisition of the social network, prompting an executive exodus and departure of rank-and-file employees. Musk has since pledged to step down from the top role, is attempting to move towards subscriptions to make money, and triggered continuous drama from his abrupt policy changes. On his first day after the takeover, Musk showed up by carrying a kitchen sink into Twitter’s San Francisco headquarters, joking “let that sink in.”
Lighting up: While they couldn’t sustain the gains, traders bid up major cannabis companies following comments made by President Biden in regards to a review of marijuana as a Schedule I substance. 38 U.S. states have already legalized pot either medically or recreationally, but it is still illegal in some states and at the federal level. Biden also pardoned 6,500 individuals convicted of “simple marijuana possession,” noting that it doesn’t make sense that pot is classified at the same level as heroin. 1 in 6 Americans are currently smoking marijuana, according to a Gallup poll from the summer, which highlights how the times are rapidly changing.
Grain deal: Russia agreed to return to a Turkish and U.N. brokered agreement that allowed the shipment of millions of tons of Ukrainian grain through the Black Sea. It had previously pulled out of the deal following an alleged Ukrainian drone attack in Crimea, but said “written assurances” from Kyiv guaranteed the humanitarian maritime corridor would not be used for military purposes. Wheat and corn futures, as well as other commodities, went on a wild ride in response to the developments, with Ukraine being traditionally referred to as the “Breadbasket of Europe.”
November
#Midterms: No red wave materialized in a key U.S. midterm election that saw Democrats eventually score a 51-49 seat majority in the Senate (following Raphael Warnock’s victory in Georgia). Congressional gridlock still lies ahead, with the GOP taking control of the House of Representatives. A clear majority for Senate Democrats could still give the party more flexibility on passing legislation by lessening the influence of centrist Sens. Joe Manchin and Kyrsten Sinema, while Democrats will have outright control of Senate committees and won’t be bound to a power-sharing agreement with the GOP.
Crypto collapse: One of the biggest stories of the month (and perhaps the year) was the meltdown of FTX International, or what some in the market called a “Lehman Brothers” moment for the crypto industry. Once valued at $32B and the third-largest crypto exchange by trading volume, FTX froze withdrawals amid an $8B shortfall following a complete failure of corporate controls that shook the unregulated crypto industry. It’s a moment of irony for the firm led by Sam Bankman-Fried, which itself served as a white knight this past summer to rescue several crypto players including BlockFi, Voyager Digital and Celsius. SBF is now awaiting trial in U.S. after being extradited from the Bahamas.
NATO membership: At a two-day summit in the Romanian capital of Bucharest, the North Atlantic Treaty Organization doubled down on a vow to make Ukraine a member of the military alliance. It was 14 years ago (in the same city) that foreign ministers first pledged that Kyiv would eventually become a constituent, and they still “firmly stand behind our commitment.” Russian missile and drone attacks have continued to target civilian infrastructure across the country, with strikes that have heavily damaged Ukraine’s power, water and energy infrastructure.
Zero-COVID: Three years after the first COVID-19 case was reported in Wuhan, China began letting up on its strict coronavirus stance as discontent spread across the country. Policies changed rapidly within weeks, with targeted lockdowns, testing, quarantine requirements and travel restrictions all being tossed out the window by the government. With emergency rooms and hospitals overrun, economists are trying to assess how the rapid easing will impact the world’s second-largest economy, while the globe worries about the virus’ untracked spread and possible new variants.
December
Meet C919: The Commercial Aircraft Corporation of China, better known as COMAC, delivered its first domestically-developed passenger jet to launch customer China Eastern Airlines (CEA). The C919, similar to the Airbus (OTCPK:EADSY) A320 and Boeing (BA) 737 narrow-body jet families, brings China a step closer toward its ambitious goal of becoming a global civil aerospace player. The plane, which underwent 14 years of development, is expected to make its maiden commercial flight in the spring, with a trip between Shanghai and the capital Beijing.
Cashing in on chips: Taiwan Semiconductor Manufacturing (TSM) made history with one of the largest foreign investments in the United States. The company announced plans for a second chip plant in Arizona (increasing its investment in the state to $40B), which would deliver enough chips to meet U.S. annual demand of 600K wafers per year. “It’s the foundation of our personal electronics, and also the future of quantum computing and AI,” said Ronnie Chatterji, White House Coordinator for CHIPS Implementation at the National Economic Council. “That’s the definition of supply chain resilience. We won’t have to rely on anyone else to make the chips we need.”
Fusion revolution: The U.S. Department of Energy revealed a major scientific breakthrough, known as a net energy gain (or target gain), that could shake up how we power our world. The major milestone was achieved at the Lawrence Livermore Laboratory in California, where scientists used the world’s largest laser to produce an effect known as magnetic confinement fusion. A tiny amount of hydrogen plasma, held in place by powerful magnets, was heated to extreme temperatures – resulting in the fusing of atomic nuclei and 20% more energy than was used in the lasers.
Bitter cold: Travel was upended from coast to coast over the Christmas holiday weekend, as snow, wind and subfreezing temperatures enveloped much of the country. That derailed the plans for many a flyer, as well as the operations of airlines that saw planes freeze overnight and airports run out of space for de-icing. No one appeared to be hit as hard as Southwest Airlines (LUV), whose scheduling systems went down for nearly a week as travelers complained of unanswered calls to customer service to rebook flights and retrieve baggage (it also sparked an investigation by the U.S. Department of Transportation).
Quote of the Week
The Decade We Solve the Debt Problem
“One million seconds is 11 days ago. One billion seconds is 1991. One trillion seconds is 30,000 BC.”
Picture of the Week
Happy New Year to all of you!!
All content is the opinion of Brian J. Decker
