2022 in Review
Ad Astra reviews the year’s events, crowns its person of the year, and more
“There are decades where nothing happens; and there are weeks where decades happen” – Vladimir Ilyich Lenin
That quote from a Russian is especially apt given that Russia restarted history this year by invading Ukraine, the largest land invasion since WW2. This year also saw the ruling regime in China threatened by nationwide protests, mass demonstrations in Iran, and a global inflation crisis. America’s ancient leaders assured us that all was well and under control, despite numerous signs to the contrary. Everywhere we look, evidence mounts that we are on a collision course with something. Perhaps this is how the passengers aboard the Titanicfelt prior to their unfortunate rendezvous with an iceberg? Regardless, Ad Astra is here to help you make sense of the year’s events.
Two Big Themes: Economic Uncertainty and The New Cold War
1. Economic Uncertainty
The global economy was still recovering from the COVID-19 pandemic in 2022, and was on shaky ground. Countries around the world shutdown their economies in the spring of 2020 and reopened throughout 2021. By 2022, most of the world had reopened. During the pandemic, many consumers switched their spending habits to services – like digital subscriptions such as Netflix. As the economy reopened, they switched their spending back to hard goods. This restart snarled supply chains and curtailed the supply of many things.
The price increased for things in short supply. This led to the emergence of inflation, which spread throughout the economy. Workers requested higher wages in response to rising costs, further increasing input costs to make stuff. This vicious cycle led to entrenched inflation in America, Europe, and around the world.
One of the biggest supply-side impacts to the economy was in oil and gas, which powers every aspect of the global economy. Underinvestment, Russia’s February invasion of Ukraine, and supply curtailments during the pandemic led to an energy shock, especially in Europe (covered in depth by Ad Astra). This greatly exacerbated inflation. Contrary to expectations, the US shale industry did not quickly increase production and the oil cartel OPEC+ regained market power.
In response to inflation, central banks around the world raised interest rates. This included rapid increases by the Federal Reserve, America’s central bank.
Interest rates are sort of like the radioactive rods Homer Simpson controls at the nuclear power plant. Lower them and reaction speeds up, raise them and the reaction slows down. Keep them too low for too long and there’s a meltdown. Likewise, lowering interest rates speeds up the economy (a good response to an economic slowdown), raising them slows down the economy, and keeping them too low for too long causes inflation.[i]
The rise in interest rates to tame inflation makes things like home mortgages more expensive and risks inducing a recession.
In 2022, important country’s population stopped growing and began shrinking. This included China and much of Western Europe. Depopulation in rich countries will become a major trend over the coming decades.
In the US, inflation reached a 40-year high and after peaking January 3rd 2022 a 60/40 portfolio of stocks and bonds had its worst year since 1937[ii], during the Great Depression.
Figure 1: US stocks, bonds, and crypto had an awful 2022[iii]
Speaking of the Great Depression, a Pew survey found that a majority of 18–29-year-olds were living with their parents in 2022, for the first time since the Great Depression[iv].
The US housing market continues to be in a remarkable state of flux since the pandemic. The widespread adoption of remote work decimated urban core property values, while property values in 2nd tier cities and exurbs surged. The combination of ultra-low mortgage rates and high demand saw prices surge.
Figure 2: US home prices surged during the pandemic[v]
But in 2022 home sales began declining as mortgage rates increased. This ushers in the possibility of widespread housing price declines in 2023.
Figure 3: US home sales began to decline in 2022[vi]
The US labor market was tight in 2022, encouraging a large number of strikes and other labor actions across the country. A rail strike was averted by congress, saving the economy from catastrophe and continuing the realignment of labor’s political allegiance. The US labor market remains tight, with significantly more job openings than unemployed people. Expect a deeper dive from Ad Astra on this issue in 2023.
Figure 4: There are still 4 million more job openings than unemployed[vii]
In 2022 one group that didn’t lose money in the stock market were our elected and government officials. Excellent Wall Street Journal investigative reporting showed that in addition to congresspeople, federal judges owned stock in companies they ruled on, and permanent federal bureaucrats traded stocks in companies they regulated. The silver lining is unlike so much in Washington that is bitterly divided along party lines, this corruption is bipartisan.
Figure 5: Members of congress versus the market[viii]
One of the best received Ad Astra articles in 2022 was “Welcome to the New Gilded Age” about monopolies. The US government increased antitrust enforcement in 2022, dusting off its old trustbusting act. They blocked a major book publishing merger, challenged Microsoft’s aquation of Activision, and stopped the raiding of two grocery store chains by private equity. Bipartisan antitrust reform also passed the House and the Senate in the eleventh hour.
Finally, after decades of offshoring American jobs, the US began to re-shore supply chains in earnest in 2022. After rising geopolitical tensions between the US and China, supply disruptions during the pandemic, and export tariffs, business leaders are making the decision to put manufacturing in America. Mentions of “reshoring supply chains” are up 1000% in corporate earnings calls and construction of manufacturing facilities in the US is up 116% versus 10% for everything else.[ix]Congress passed the bipartisan CHIPS Act, allocating tens of billions in subsidies for semiconductor fabs in Ohio and Arizona, creating thousands of jobs and securing supply of a vital good in the 21stcentury.
2. The New Cold War
The second big theme of the year is the New Cold War emerging between the US and China. Like the first Cold War, the New Cold War is an ideological conflict and global in scope. It will be fought in various proxy wars around the world. Two separate blocs of nations will emerge with competing political, economic, military, and technological systems.
When viewed through this lens, the Russo-Ukraine War is a proxy conflict in this New Cold War. In the first Cold War, China was the junior partner to the Soviet Union on the Eurasian landmass until Nixon went to China in 1972 to flip them against the Soviets. This time around, Russia is the junior partner to China and our policy toward Ukraine is pushing the Russians closer to the Chinese. China's President Xi Jinping and Russia's Vladimir Putin met in Beijing on February 4, 2022 – weeks before Russia’s invasion of Ukraine - and announced a strategic partnership that they said was aimed at countering the influence of the United States and that would have "no 'forbidden' areas of cooperation"[x]. Xi Jinping may have cleared Putin’s planned invasion of Ukraine, though he denys it.
Figure 6: Xi and Putin meet February 4, 2022
Russia and China have been increasing their energy links, and European sanctions on Russian oil and gas imports will redirect more Russian energy to China. We also saw other players in the Chinese bloc emerge in 2022 with Iran supplying drones and North Korea supplying artillery for Russia to use in Ukraine.
Figure 7: Russia-China energy links[xi]
In mainland China, Xi Jinping secured an unprecedented 3rd term as Chinese Presidenteffectively making him dictator for life. The Chinese population likely peaked and began to decline, a serious challenge for China in the coming decades. The Chinese population is expected to fall to 600 million by 2100 from 1.4 billion today.[xii]
The American firm Apple announced it planned to remove part of its supply chain from Chinaand relocate it to India and SE Asia. Apple also faced criticism for a China-only update to its iOS software that removed the ability to Airdrop files to “everyone” in range, not just known contacts. The feature had been used by pro-democracy demonstrators to coordinate protests in Hong Kong and the update was likely made at the behest of the Chinese government.
Direct tensions between China and the US in the New Cold War also escalated after the US placed export controls on some high-performance semiconductors going to China. China produces low-end semiconductors and imports high-performance variants, so the economic sanctions will likely place a drag on China’s economy and their ability to deploy advanced weaponry. Goldman Sachs estimates the sanctions will shave 1.7% from China’s GDP by 2026.[xiii] Some compared this to oil sanctions placed on Japan by the US, which led to the attack on Pearl Harbor and US entry into WW2.
Figure 8: Chinese net imports of semiconductors[xiv]
Finally, on the military front the US provided arms to allies in the Asia-Pacific region in an attempt to box in China. The US provided nuclear submarines to Australia, Tomahawk cruise missiles to Japan, and earmarked $10 billion for arms to Taiwan in the 2023 defense bill. This is the first time the US has provided arms directly to Taiwan.
Ad Astra Person of the Year
One of the biggest stories of 2022 was Elon Musk’s $44 billion buyout of Twitter, which is ground-zero for the information war that defines American politics today. Musk’s purchase of Twitter and the subsequent release of internal documents revealed that 3-letter US government agencies (FBI, DHS, DNI) used Twitter to shape domestic public opinion. But all of this has been overshadowed by two men.
On the day the Twitter deal closed, Musk was expected to clean house at Twitter. Two men going by Rahul Ligma and Daniel Johnson impersonated laid off Twitter employees, carrying boxes outside Twitter HQ in San Francisco. Despite their humorously fake last names (Ligma is used as slang online for “lick my”) and the fact that they didn’t actually ever work at Twitter, the media widely reported their fake story.
Rahul Ligma and Daniel Johnson are the Ad Astra 2022 Men of the Year.
Figure 9: Ad Astra 2022 Men of the Year with Elon Musk
Ad Astra Scam of the Year
America has seen a number fraudsters in recent years, with many getting their own streaming series afterwards: Enron, Bernie Madoff, WeWork, and Theranos. But none compare to potentially “the greatest fraud in American history”, the cryptocurrency exchange FTX.
Sam Bankman-Fried has been accused of engineering “one of the biggest financial frauds in American history” as US prosecutors filed criminal charges against the founder of failed cryptocurrency exchange FTX.
In its indictment, the US Department of Justice charged Bankman-Fried with eight counts including conspiracy to commit wire fraud on customers and lenders, money laundering and violations of campaign finance laws.
The charges point to a long-running scheme to misappropriate the deposits of exchange customers to pay debts and expenses of Bankman-Fried’s private trading firm Alameda Research and to make investments.[xv]
Hopefully you didn’t own any cryptocurrency in 2022.
Figure 10: SBF is arrested
Ad Astra Image of the Year
The US launched the largest rocket in human history to the moon this year and nobody cared. It did take this video of the earth and moon though, which is our image of the year.
As a runner-up, NASA launched the James Webb Space Telescope (JWST) to replace the aging Hubble Telescope. The JWST sits on the dark side of the earth, away from any light pollution, and took this photo:
Figure 11: Jupiter from the JWST
Ad Astra Breakthrough of the Year
In perhaps nature’s version of creative destruction, bursts of innovation often follow pandemics. The Renaissance followed on the heels of the Black Death. COVID-19 has been no different and we are just starting to see science and technology leap forward.
ChatGPT is an Artificial Intelligence (AI) that can be chatted with in natural language. After a few years of improvement, it doesn’t take much imagination to see this fundamentally changing the world. If you haven’t played with it, I encourage you to check it out. I asked it to explain “the singularity” and this was its response:
If it keeps this up, it can write the 2023 in review newsletter in my place.
Just as this article was going to press (?) the US Department of Energy shared the news that it had achieved a net energy gain in a fusion reaction at the Lawrence Livermore National Laboratory. Fusion is the holy grail of clean energy technologies, replicating the same reaction that powers stars. Harnessing fusion would unlock a virtually unlimited, clean source of energy for humanity. While the commercial application of fusion is likely still decades away (at least), this is nevertheless a historic breakthrough.
[i] Ad Astra
[ii] The Economist
[iii] The Economist
[iv] Pew
[v] WSJ
[vi] WSJ
[vii] Goldman Sachs
[viii] @unusual_whales
[ix] Bloomberg
[x] https://www.reuters.com/world/china/moscow-beijing-partnership-has-no-limits-2022-02-04/
[xi] https://oilprice.com/Energy/Energy-General/Energy-Deals-Are-Creating-A-Powerful-Alliance-Between-China-And-Russia.html
[xii] World Economic Forum
[xiii] https://www.goldmansachs.com/insights/pages/gs-research/macro-outlook-2023-this-cycle-is-different/report.pdf
[xiv] @JKempEnergy
[xv] Financial Times
Fantastic article! Thank you for summing up such a event filled year. - John H.