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A glimmer of light in a terrible year

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Few will regret the death of 2022. You witnessed a brutal attack on a peaceful neighbor by a vile tyrant. It has seen rising inflation and falling real incomes in light of a global cost of living crisis. It has seen rising interest rates, a strong dollar and widespread debt difficulties: according to the International Monetary Fund, 60 percent of low-income countries are in debt distress or at high risk of being in debt.

It witnessed falling asset prices and increasing volatility in the markets. It has seen significant moves toward decoupling the United States and China and forming competing blocs centered on the two superpowers, with Russia firmly in China’s camp. I witnessed COP27 failed To bend the greenhouse gas emissions curve down. She has not even witnessed a full recovery from the dire consequences of the covid pandemic, Especially among the poorest people in the world.

Line chart of US inflation expectations, derived from Treasury yields (%) showing US Treasury yields rising, but inflation

This is bad. The worst could be in the future, possibly much worse. Vladimir Putin, in particular, is an unknown amount. Also, as we have seen in his Covid policy, is Xi Jinping. Who knows what financial mess the Republicans might unleash over the US debt ceiling in 2023? Again, is the EU really going to stay the course in Ukraine as interest rates rise, economies fall into recession and the debt crisis deepens?

However, they are not all bad. In 2022, the light has also shone in the dark. Let’s celebrate this before we enter a new year.

line chart of responses to a survey question,

West is back. The invasion of Ukraine has brought together those who share democratic values. For the NATO alliance, it was a time of rebirth. For Germany, it was Zeitenwende. for Finland and SwedenIt is time to reject neutrality. Donald Trump kowtowing to Putin Failed to undermine US support for Ukraine. Volodymyr Zelensky won the propaganda war. he is Heroic commander Ukraine – and the West – desperately needs it.

The line chart of the CBOE Vix US stock market volatility index shows that the volatility of the US stock market was relatively high in 2022

Putin is not The only strong man who looks weaker today than he was a year ago. So do Xi and Trump. the previous Zero covid policy It ended in disgrace. Today’s version of ancient Chinese despotism’s claim to rule more efficiently than anarchic democracy lies in tatters. Iran’s tyrants are under attack of their young. Trump’s nominees have been largely rejected in the midterm elections. Yes, he has a lot of proponents of convenience. The Republican elite is still a coward. But Congress has made it now Try to rebel Normal as day.

Meanwhile, in devastated Britain, the value of democracy was also proven. Driven by fears of electoral defeat, the Conservatives dumped Boris Johnson, and the stunningly inept Liz Truss followed suit in 44 days. Nobody died. Democracy is not perfect, especially when it takes the form of referendums on topics that people are not expected to fully understand. But they learn: talk YouGov poll Fifty-one percent regretted Brexit and only 34 percent supported it. This shift would allow any future government to bring the UK closer to the EU again.

The line chart shows the cyclically adjusted price-earnings ratio of the US stock market, the US stock market valuation has fallen but is still high

With hindsight, but with determination, the Fed acted to bring domestic inflationary pressures under control in the United States, where they were strongest. As a result, inflation expectations remain in check. The pain has yet to come. But there are good prospects for inflation to be brought under control in the US and elsewhere in 2023. A return to growth should follow.

Rising nominal and real interest rates rattled the markets. The cyclically adjusted price/earnings ratio for the S&P 500 fell from 39 in December 2021, the second-highest peak in history, to a recent low of 27. That’s still well above the long-term average of 17. A step toward reality. Markets have also become significantly more volatile and some speculative assets have fallen badly. Bitcoin has fallen from a peak of $69,000 last year to $17,000. This proves that it is neither a unit of account nor a store of value. It has never been a useful payment method. As Bitcoin went, so did Sam Bankman-Fried’s FTX. Interest rates may not remain high in real or nominal terms. But their jumps reminded investors of the risk. Hassan.

Line chart of $1,000 per bitcoin showing bitcoin has suffered a huge loss in value in 2022

Globalization is not dead. Indeed, outside of the United States, where grumblings about unfair trade have become almost epidemic, most countries understand they need fair trade to thrive. Encouragingly, the International Monetary Fund expects global trade in goods and services to rise by 4.3 percent this year. Interestingly, this is faster than the 2.9 per cent growth in trade in goods: trade in services takes the lead. This follows a 10.1 percent growth in the volume of trade in goods and services and a 10.8 percent growth in trade in goods in 2021. Meanwhile, global GDP is expected to grow by just 3.2 percent in 2022, after 6 in cent in 2021.

So, the world is not backing down from globalization: trade is not growing as fast as it used to be. This is in part a natural progression. Globalization could not grow as fast as it used to. But it still works. The global economy also continues to grow. Our grandparents would find this unusual.

The vertical graph of growth in world GDP and trade (annual percentage change) shows that world trade is still growing in tandem with output, but not much faster

Finally, in chaotic and uncoordinated fashion, the world is leaving Covid behind. Vaccines have greatly helped with this, although they are not distributed as widely as they should be. Worse variants are likely and new epidemics are likely. But this is progress.

It is easy to become overwhelmed by the dangers, injustices, conflicts, and failures in our world. Surely, there are enough of them. But not everything that happened this year was a disaster. For those who believe in democracy, the rule of law, continued economic progress, global economic integration, healthy financial markets, and monetary stability, 2022 wasn’t all bad. However, let’s hope that 2023 will be better. needs to be.

martin.wolf@ft.com

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Economic

Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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