I expect I’m not the only one ready to close the book on 2022. Funny how a 20% drop for the S&P 500 leaves a bitter taste in your mouth…

And I gotta say, the fact that stocks will finish in the red today, the final trading day of 2022, seems like a fitting tribute to a lost year for investors. 

Today I’d like to pay a little tribute to the two men who are most responsible for 2022’s bear market: Fed Chair Jerome Powell and Russian President Vladimir Putin.

Now, a lot of people blame Powell’s interest rate hikes to combat runaway inflation as a primary driver for the stock market’s decline in 2022. In fact, I hear Congress is set to press the Fed to ease off the rate hikes, lest Americans start losing their jobs en masse and the unemployment rate spikes. 

Of course, this line of questioning shows a deeply naive understanding of inflation and interest rates. In order to bring inflation down, consumer spending must come down. But this is America we’re talking about. We don’t stop spending money. Unless of course, we lose our jobs…

And that’s what rising interest rates are designed to do: get people fired. 

Congress can’t have it both ways. Inflation will not move meaningfully lower while the country enjoys full employment. But this isn’t really the point.

The point of making Jerome Powell one of the posterchildren for 2022 is because of what he did in March of 2021. Or rather, what he didn’t do…

Just do your JOB!

The Fed has two jobs. One, keep inflation at 2%. Two, ensure maximum employment. Now, ensuring maximum employment is a bit of a vague job description. There isn’t really a hard number that defines maximum employment. There’s no specific threshold that says employment is at a maximum level. 

But inflation at 2%? Yeah, that’s pretty specific. 

And when inflation hit 2.6% in March of 2021, Fed Chairman Powell did nothing. When inflation almost doubled to 4.2% in April 2021, Powell said it was transitory, a blip that would reverse course quickly. Inflation hit 5% in May 2021, Powell doubled down on his insistence that it was transitory…

Economists openly mocked Powell when inflation broke over 6% last November. He was unmoved and so were interest rates.

December’s 7% inflation was the tipping point, at least for the stock market. It was obvious that rates had to go higher and investors started selling. Still, Powell did nothing for three more months, finally raising rates by a ridiculously insignificant 25 basis points when inflation hit 8.5% in March 2022. 

The bottom line is that Powell didn’t do his job. He ignored the Fed’s Prime Directive and gave us 2022. Thanks a**hole!!

The Year that Broke Globalization

Putin as a poster child for 2022 is pretty obvious, at least on the surface. His decision to invade Ukraine caused grain and energy prices to spike. 

Of course, this contributed to inflation in ways that Fed Chair Powell couldn’t have anticipated. But that doesn’t let him off the hook. In fact, I think it makes his inaction in 2021 all the more egregious. Because trends always take a while to play out. Good stories get better, bad stories get worse. This is why investors use things like limit orders and stop losses. These are predetermined levels where investors will simply act. 

But the bigger result of Putin’s invasion is that globalization is now permanently broken.Of course cracks were already forming. Tensions with China had already been rising steadily for years.

But Putin turned those cracks into canyons.

Now, I know, I’ve written about the end of globalization a lot. Call me crazy, but it’s kind of a big deal…

The New World Order 

It’s often said that the seeds of the next bull market are planted during the bear market that precedes it. At some point, we will look back at 2022 and see that the end of globalization, the return of supply chains and manufacturing to the U.S. and North America, greater scrutiny for trade with unfriendly countries like China are these seeds. 

In the coming years, these seeds will blossom into a revitalized American economy. A couple million new and high-paying jobs, a thriving middle-class, the re-birth of manufacturing areas and communities that were abandoned by globalization…and a raging bull market for the companies that are driving this new world order. 

As you know, I’m calling this revitalization the Second American Industrialization. And it’s really going to kick into gear in 2023. Personally, I’m fine with this bear market dragging on a few more months because it means the stocks I want to own will remain cheap, and maybe even get cheaper. We'll be talking about all this a lot more next year…

So, Happy New Year, thanks for reading, and here’s to a better year in 2023!

Briton Ryle
Editor-in-Chief
Pro Trader Today