Vincent’s Corner launched nine months ago. It is now time to reflect on 2022, and to recognize those who contributed to making this year an interesting one!
Word of the Year: Inflation
After more than a decade of central bankers complaining that inflation was too low, their wish was finally granted: Inflation exceeded 9% in the US and 10% in several European countries. But be careful what you wish for. What central bankers and politicians had forgotten was how unpopular inflation was. Inflation is now the number one concern for many Americans and Europeans.
Central Banker of the Year: Jay Powell
As Michael Saylor would say: “there is no second best” to the chairman of the US Federal Reserve (the Fed), Jay Powell. Rarely has a chairman of the Fed been so consistently wrong so many times, and for so long. Let’s remember some of Jay’s greatest hits since 2020.
First, he flooded the system with money, because there wouldn’t be any consequences, right?
Then, he said he was “not even thinking about thinking about thinking about raising rates”
But he said not to worry, inflation was transitory
Then, he retired “transitory” a few months later
As inflation went out of control, Jay Powell went on to increase the Fed’s benchmark interest rate seven times in 2022, taking the Fed Funds rate from 0.25% up to 4.50%.
G7 Leader of the Year: Liz Truss
The record of Liz Truss is nothing short of extraordinary. She was the UK Prime Minister for only 45 days, but what she did during her term will probably remain unmatched for many years (and hopefully decades for UK citizens): She crashed the British Pound, she broke the UK Government bond market, and she triggered a collapse of the British pension system, which had to be rescued by the Bank of England. What was her fatal flaw? Her complete lack of understanding of basic economics, and probably math too.
At a time when Central Banks around the world were tightening financial conditions and raising interest rates to try and fight inflation, she decided to go the other direction: Print money and lower taxes for the rich. It cannot be overstated how misguided this policy was. She was very quickly reminded by capital markets of the absurdity of the measures she was pushing. She tried to backtrack, but it was too late. After just 45 days, she had to resign as UK Prime Minister.
She would have deserved more than one award, but Vincent’s Corner already covered Liz Truss extensively this year (here and here), including her epic fight to outlast the Daily Mail’s lettuce (she lost), so she only gets one award.
Self-Immolation of the Year: Europe with its Energy Policy
Having handed over control of its energy independence to Russia, Europe still decided to punish… itself by restricting energy flows from Russia following the Ukraine invasion. The sanctions benefited Russia through higher commodity prices, and hurt Europeans and European companies. EDF had to be nationalized in France, and Germany had to spend EUR 51 billion to bail out Uniper. European industries started to relocate to the US and China, where energy prices are lower than in Europe. This was entirely self-inflicted, and could have been avoided.
Only in recent weeks have European leaders started to realize that Europe was actually footing the bill for the war in Ukraine and US-led sanctions on Russia. American armament companies have benefited from the billions of dollars of military equipment sent to Ukraine, while American natural gas producers have been selling Liquefied Natural Gas to Europe at a multiple of the price they are selling it in the domestic market.
We can only hope that in 2023, European leaders will use their common sense to make policy decisions, instead of making decisions that may sound good, but actually achieve the opposite effect of what was intended.
Bonus: Special award for Germany and its anti-nuclear, pro green energy policy that led the country to re-commission many of its coal-fired power plants in 2022. In October 2022, Germany started deconstructing a wind farm to make way for… a coal mine! You can’t make this up!
Fraudster of the Year: Sam Bankman-Fried (SBF)
The scale of the FTX fraud keeps growing every day. It is without a doubt the largest financial fraud since Madoff in 2008. SBF allegedly scammed his (reckless) investors out of $1.9 billion and his depositors out of $8+ billion. See the two newsletters I dedicated to the saga here and here.
Money Incinerator of the Year: Growth Stocks
After rising to stupidly high valuations in 2020 and 2021, growth stocks went back down to Earth in 2022. Even a company like Peloton, which experienced exponential growth during Covid, is down more than 75% compared to its pre-Covid valuation! While Wall Street didn’t care about profitability when money had no value (i.e. since 2008 when central banks lowered interest rates down to 0), now that money has a price again, and investors have the option of receiving a 4% coupon just by holding US Treasuries, the game has changed.
See you all in 2023!
Vincent