by David Haggith, The Great Recession Blog:
This was the year where it seemed everything imploded. For the economy, it started with two quarters of receding GDP that everyone refused to call a recession. Whether you stand with the crowd on that or not, it was certainly not a good change and was certainly a collapse of the economy toward a smaller state based on production. But that was just where it all began. What follows is an amazing overview of a world in a state of collapse.
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The stock market’s north-pole polar-bear plunge
Right from the start, 2022 became the year the stock market imploded with all major indices down and down … and down some more all year long. So far, this is the year Santa’s slay didn’t soar into some kind of end-of year rally. Instead, the Grinch stole the slay and just went down the hills and through the snow like sleds are supposed to go.
The Grinchy Dow started bounding down the mountainside at the top of year in an endless series of leaps off bluffs and is currently down 11% for the year. At its lowest point of the year, it fell 22% into a full bear market that it remains mired in.
The S&P also started going downhill at the top of the year; but it ran down in front of the Grinch like his dog, trying to keep the Dow from hitting him in the butt, to where the S&P is currently down 20% from its all-time high. At its lowest point it fell 25% from its peak.
The Nasdaq took the worst ride of all. Instead of sliding down like the Grinch’s sled or running for its life to keep from getting ploughed over like his dog, it rolled all the way down like a growing snowball. It got an early lead in November of last year and is currently down 34%! At its nadir, it was down 36%!
As a symbol of this year’s hard times where the FAANG stocks that were the market leaders for a decade got their chops busted, Amazon became the first corporation in history to lose over a trillion dollars in market value. As a scale for the impact of this market collapse of overhyped valuations, that is a lot of zeroes: $1,000,000,000,000. In aggregate, technology companies have lost nearly $5-trillion this year.
Media … has been among the hardest-hit sectors in what is set to be the worst year for global equities since the financial crisis. “It’s been a perfect storm of bad news,” said Michael Nathanson, media analyst at SVB MoffettNathanson. “I’ve been covering this sector a long time and I’ve never seen such a bad collection of data points before.”
No Christmas bond bons for you
2022 was also the year of the bond market nearly froze up at times and experienced its greatest implosion on record, depending on what part of the bond market you are looking at. For real performance on US Treasuries, it was the worst ever (meaning once inflation is factored in).
Morningstar called it,
The Worst Bond Market Ever
Among fixed-income securities, there has been no refuge. Interest rates have spiked across the yield curve, thereby sinking all investment-grade debt. Lower-quality notes have also struggled. Sometimes when interest rates rise, junk bonds perform well, because credit spreads tighten. Not this year. Instead, credit spreads have widened owing to fears of a recession. The result has been comprehensive bond market losses….
Corporate bonds were also just reported on Monday as being on pace for their worst year in history:
Corporate bonds on pace for worst year in history with negative 14% yield
The largest portion of the roughly $10 trillion US corporate bond market looks set to cement its worst year ever by a long shot.
Investment-grade corporate bonds, a longtime source of funding for the world’s largest companies, were set for [a plunge from] zero [to] -14% total returns in 2022, “a level that would mark the second biggest decline on record since 1974….”
And the year ain’t over yet. As laid out in an article in Tuesday’s Daily Doom, Japan just accelerated global bond yields, US included, back into a worse trajectory (of yields jumping up, prices falling). It has been the last bank to join the rate-hike Polar Express to the North Pole, but jumped on board unexpectedly.
With the exception of Japan’s boost during this rising week of yields, the US bond market, usually the wiser of the two markets (stocks and bonds) doesn’t appear, given its recently falling rate path, to believe the Fed is going to keep raising its target rates, which would send bond rates higher. The bond market seems to have bought the pivot narrative, but I think the bond market is as wrong as stocks. Bond yields have generally been falling for two months as if inflation is about to drop off a cliff. Maybe they got the memo this week, given the toboggan-shaped turn they appear to have just put in:
High-yield corporate bond rates spent the whole year climbing until October, and you can see they never quite reached the level of major trouble in the past
However, you can also see yields can spike abruptly upward when a crisis suddenly emerges, and we have just entered the phase where the Fed said at its last meeting that its interest policy has finally hit a level it would call “restrictive” and that it plans to go higher for longer. So, we have just moved into the financial tightening phase where breakage happens.
All-in-all, a very bad year for stocks and bonds together.
The snow-job labor implosion
The biggest implosion surprise of the year (for many) came when job market imploded in a single day … at least from what people believed the truth was about jobs to what was revealed … but few there are who have accepted the Fed’s revelation. As mentioned in an earlier article, while the government reported something like 2.5-million jobs were created from March to the present, as it sang all year about the astoundingly merry jobs market, it turned out the real number was about 12,000, which on the scale of the US job market, is virtually nothing at all.
That’s right: no jobs added from March to the present.
Since 2.5-million would have been a good year, 12k was an overnight implosion of realization (if you got the very hushed memo); yet, the Fed is telling you it wants to tighten down on that considerably more. That ought to drive us deeper into the snow bank and possibly even send inflation back up for an unbridled stagflation recession if the further reduction in jobs further reduces production (thereby further increasing shortages) faster than the Fed’s reduction in money supply takes the pressure off prices. (Remember, the recipe for hot inflation is too much money chasing too few goods.)
The Great Crypto Collapse
2022 was also the year the worlds growing colossus of crypto currencies imploded. (Is this year starting to sound like the Everything Bubble Bust that I laid out in several extensive articles for patrons at the top of the year?).
Many cryptos are down 50-90%….
Bitcoin, the crypto king, is only down 64% from where it started the year. It was at one point, however, down 80% from its all-time high!
Even the misnomered stablecoin destabilized. So the center-less world of decentralized finance didn’t hold. Centrifugal force won the day.
The loss of coinage value, though, was far from the only damage in DeFi. There was also that whole cryptocurrency exchange bust-up where the “banking world,” so to speak, of crypto fell off the back of the sled like Santas sack of packages spilling all the way to where people got froze out of their funds. Witness the now infamous FTX whose nefarious Ponzi pirate, the appropriately named Sam Bankman-Fried (recommend saying it with a snarky long “I”), is sitting in jail awaiting trial because no one trusts him not to run … since he already did to the Bahamas. There is likely to be some serious prison time in that one as he joins the likes of Bernie Madoff and ol’ Charles Ponzi, himself, in penury purgatory.
So, yeah, the crypto crash has been a bone-crushing impact … but what isn’t this year, except cash where your losses have been minimized to about 7-8% due inflation? So, everything is losing. That is what happens when the Fed creates a fake economy built on artificially lowered interest for over a decade and then finally pulls the plug in a year where everything else (droughts, wars, residual plagues, shortages from lockdowns, etc) is going paws-up anyway. If it could go wrong in 2022, it went worse. So, yeah, the Everything Crash, even cash.
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