As DB’s Henry Allen puts it succinctly, “2022 was an awful year for financial markets, with the S&P 500 seeing its worst annual performance since 2008, just as global bonds fell into a bear market for the first time in 70 years.”

The biggest driver of this was much stronger-than-expected inflation, which hit multi-decade highs and led central banks to embark on their most aggressive tightening cycle in a generation. In the meantime, investors also had to grapple with geopolitical turmoil, since Russia’s invasion of Ukraine led to massive spikes in energy and food prices that particularly hit emerging market economies. That meant commodities were among the few assets that ended the year in positive territory. But elsewhere, the picture was far less rosy, and just 9 of the 38 non-currency assets in DB’s sample made gains over 2022 as a whole, whilst in USD terms it was just 6 out of 38.

Year in Review – The high-level macro overview

The start of the year contained much of the themes that continued over the rest of 2022, with January seeing central banks pivot in a hawkish direction in response to continued and persistent inflation. For instance, investors initially expected the Fed to hike by just 74bps over 2022 as a whole, which was roughly in line with the FOMC dot plot from December 2021 that pointed to three 25bp hikes. But by the end of January, futures were pricing 123bps of hikes by year-end, with an initial rate hike widely expected for March.

That trend continued into early February, with growing speculation that the Fed might start the hiking cycle with a larger-than-usual 50bp hike. But by mid-February there were growing warnings that Russia was about to invade Ukraine, which then occurred on February 24. That led commodity prices to surge, with Brent crude surpassing $100/bbl for the first time since 2014, before peaking at an intraday high for the year at $139/bbl on March 7. Other commodities also spiked, including European natural gas, and various agricultural goods such as wheat.

This rise in commodity prices created a fresh dilemma for central banks. On the one hand, they were unable to directly deal with the supply shock, but its consequences were being seen through higher inflation, creating the risk that inflation would become increasingly entrenched over time. With inflation concerns dominating the growth worries, the Fed began its hiking cycle in March with a 25bps move. However, on March 29 the US 2s10s yield curve inverted for the first time of this cycle, which was a concerning sign given that it had inverted prior to all of the last 10 US recessions.

By the end of Q1, markets had put in a pretty poor performance, but in Q2 it was even worse. Once again, the catalyst for this was stubbornly persistent inflation, and there was a massive slump in mid-June after the US CPI release for May came out. That showed inflation surprising to the upside yet again, which in turn prompted the Fed to ratchet up the pace of rate hikes to 75bps for the first time since the 1990s as they sought to get inflation back to target. The prospect of 75bp hikes triggered sizeable losses, with the S&P 500 falling by more than -10% in the space of a week, which was the first time that had happened since the pandemic turmoil of March 2020. At the same time, yields on 10yr Treasuries rose to 3.50%, their highest intraday level in over a decade.

Following the awful H1 performance, there were growing hopes by the summer that the Fed might soon begin pivoting in a dovish direction. Falling energy prices helped to boost that narrative, and the US CPI report for July showed the first monthly decline in prices since May 2020. But any hopes of that were firmly stamped out by a hawkish speech from Fed Chair Powell at Jackson Hole, where he said that getting back to price stability would “likely require maintaining a restrictive policy stance for some time.” The ECB also hiked rates for the first time in over a decade, opening with a 50bps move in July and following up with a 75bps move in September.

Another feature of Q3 was growing fears about a potential recession, particularly after the Nord Stream gas pipeline from Russia was suspended. At their peak, European natural gas futures rose above €300 per megawatt-hour, which ledEuropean governments to step in to protect consumers and businesses from the impact of higher energy prices. Later in the quarter, there was then a fresh bout of turmoil centred on the UK, after the government unveiled the biggest package of tax cuts in half a century. Sterling hit an all-time intraday low against the dollar and there was a large spike in gilt yields that prompted a Bank of England intervention. The turmoil did subside after the government U-turned on the bulk of the announcements, with Liz Truss succeeded as PM by Rishi Sunak. But even with the stabilization in Q4, gilts were still down -25.0% over 2022 as a whole.

This backdrop meant that Q4 started on a rough note, with the S&P 500 hitting its closing low for the year shortly afterwards on October 12. However, markets were more resilient after that as both the October and November CPI readings from the US surprised on the downside, leading to growing hopes that we might have finally seen “peak inflation”. That was echoed in the Euro Area too, where inflation fell from a peak of +10.6% in October to +10.1% in November. With inflation falling back, both the Fed and the ECB stepped down to 50bp hikes in December, but they remained hawkish in both cases, signalling further rate hikes ahead in 2023. The Bank of Japan also joined in the action right at the end of the year, announcing in a surprise move on December 20 that they were adjusting their yield curve control policy, with the 10yr yield now able to rise to 0.5%, having been limited to 0.25% before. However, even with the hawkish moves in December, Q4 still marked the only quarter of the year where markets had a broadly positive performance, with each of the S&P 500, the STOXX 600 and US Treasuries seeing a positive quarterly performance for the first time this year.

Which assets saw the biggest gains of 2022?

• Commodities: In a rough year more broadly, commodities were one of the few asset classes to post consistent gains in 2022. A big factor in that was Russia’s invasion of Ukraine, which led to a major spike in energy and food prices in Q1, which then unwound somewhat as the year went on. Nevertheless, Brent Crude (+10.5%) and WTI (+6.7%) still posted gains for the year, as did corn (+14.4%) and wheat (+2.8%) prices. For metals there was a more mixed performance however. Some such as platinum (+10.9%) performed very strongly, but gold (-0.3%) saw little movement and copper (-14.6%) posted its first annual decline since 2018.
• US Dollar: With the Fed hiking rates and moving faster than other central banks, the US Dollar was a major outperformer in 2022. The dollar index (+8.2%) posted its biggest annual advance since 2015, and the dollar itself strengthened against every other G10 currency over the year.

Which assets saw the biggest losses of 2022?

• Equities: An aggressive campaign of rate hikes and growing fears of a recession meant it was a rough year for equities. The S&P 500 (-18.1%) saw its biggest annual decline in total return terms since 2008, despite a +7.5% gain in Q4. Over in Europe, the STOXX 600 fell -9.9% over the year, and there was little respite in emerging markets either, with the MSCI EM index down -19.9%.
• Sovereign Bonds: After a multi-decade bull run, 2022 was an incredibly bad year for sovereign bonds. For instance, Bloomberg’s index of US Treasuries (-12.5%) posted its worst annual performance since data begins in 1973, and the iBoxx series was also down -12.9%. Longer-term data showed that it was the worst year for 10yr Treasuries on a total return basis since 1788. Euro sovereign bonds saw even larger declines, with a -18.4% decline thanks to losses in every single quarter, whilst gilts fell -25.0% amidst the turmoil in the UK.
• Credit: It was a very bad year for credit, with losses across all of the USD, EUR and GBP indices we follow. GBP credit saw some of the biggest declines, with GBP IG non-fin down -20.4%. However, high-yield credit was a relative outperformer across different regions, with EUR HY only down -10.6%, and US HY only down -10.7%.
• Cryptocurrencies: The risk-off moves more broadly proved bad news for cryptocurrencies, with Bitcoin down -64.3% to close the year at $16,540, having started the year at $46,334. This pattern was echoed among other cryptocurrencies, with Ethereum down -67.5%, Litecoin down -52.0%, and XRP down -58.7%.

Best and worst performing assets in December (local currency and USD)

Best and worst performing assets in Q4 (local currency and USD)

Best and worst performing assets in 2022  (local currency and USD)

More in the full DB note available to pro subs in the usual place.

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

The prospects for peace, justice, and the advancement of liberty in 2023 may at first seem further away than ever. Washington’s determination to overthrow the Russian government via a proxy war in Ukraine has brought the threat of nuclear war closer than ever in history. The mainstream media is even “normalizing” the idea that a nuclear attack on the US is really no big deal. Yahoo News wrote yesterday that a “public health expert” is “concerned” that Americans are not sufficiently prepared for nuclear bombs hitting major US cities!

The Yahoo article even links to a FEMA-authored “nuclear detonation planning guide” to help us better get through a barrage of nuclear missiles. Are they insane? They act as if a nuclear attack on the United States is just another inconvenience to plan for, like an ice storm or a hurricane.

The FEMA guide’s advice on what to do during a nuclear attack is, “Get inside, stay inside, and stay tuned.” Stay tuned to what? Have they not seen the photos from Hiroshima or Nagasaki?

While we are foolishly edging toward war, with the media and Beltway neocons cheering it on, there are still some bright spots we can look to in 2023.

• First, polls consistently demonstrate increasing American opposition to US involvement in Ukraine. Republicans are set to take control of the House this week right as Republican voter support for more military aid to Ukraine has seen a dramatic and steady decline. US households continue to struggle under runaway inflation and a looming economic crack-up and more Americans are going to demand answers from their government as to why we have sent more than $100 billion to Ukraine while so many are struggling at home.

• Second, a recent Rasmussen poll has revealed that in light of the “Twitter Files” – which showed that the FBI viewed the social media platform as a paid subsidiary of the US government – some 63 percent of likely US voters “believe Congress should investigate whether the FBI was involved in censoring information on social media sites.” A large percentage of those polled believe the FBI has been politicized by the current Administration, which may give incoming Republicans in the House some backbone to launch an actual investigation. Without the First Amendment, the other Amendments are virtually meaningless, and when the US government can strong-arm “private” businesses to attack free speech, freedom has no future.

• A third bright point is that the nearly twelve-year war on Syria might finally be closer to settlement. Syrian and Turkish defense ministers held negotiations brokered by Moscow which resulted in an agreement by Turkey to withdraw its military forces from Syrian soil. There are rumors that a meeting between the leaders of Turkey and Syria may come as soon as early this new year.

The destruction of Syria was part of the Obama/Hillary/neocon plan to “remake” the Middle East, but as always these interventionist schemes have only resulted in death and destruction. Washington continues to lecture Russia about occupying Ukrainian soil, yet the US military has for years occupied Syrian territory for the sole purpose of backing extremists and stealing Syrian oil. Turkey leaving Syria will add pressure for the US to leave Syria. That is a good thing.

The new year is upon us. It might be easy to feel dejected. But for we who promote peace, freedom, and justice, there is much to build on. Do not allow your voices to be silenced!

The Kremlin has announced that Japan’s “anti-Russian course” means that peace treaty talks remain “impossible” at this point, according to the words of a senior Russian foreign ministry official quoted in TASS.

“It is absolutely obvious that it is impossible to discuss the signing of such a document [a peace treaty] with a state that takes openly unfriendly positions and allows itself direct threats against our country,” the official said.

The two countries have long been locked in a standoff regarding competing territorial claims over islands off northern Japan, disputed since the end of WWII, but which have come under increasing militarization by Russia.

For example, Russian forces have just in the last month deployed new missile defense systems in the disputed Kuril Islands, as part of what looks to be a semi-permanent forward positioning of troops, specifically a mobile coastal defense missiles system on a northernmost island in the chain, Paramushir.

Russia knows the island chain as the Kurils while Japan calls them the Northern Territories. Russia has long been denounced by Japan and its allies in the West for sending military assets there.

The Soviet Union had annexed the islands during the final days of WWII, and the status of ownership of the islands, which Russia de facto currently controls, is still unresolved and as a treaty regarding their status has been subject of on-again, off-again negotiations with President Putin. 

As for the fresh Kremlin statement on Japan’s “unfriendly positions” which make negotiations “impossible” – this appears a reference to Japan joining the Western initiative to impose sweeping sanctions on Russia over its invasion of Ukraine. 

Tokyo has also moved to cut its dependence on Russian oil and coal exports over the past months. In November Russia’s ambassador to Japan lashed out at both Tokyo and Washington while describing that “The unfriendly action from the Japanese side unfortunately worsened our relations greatly. And now the future of our relation is uncertain.”

Authored by Mike Shedlock via MishTalk.com,

A Prudential Pulse survey finds large percentages of millennials, gen Z and women  struggle with finances. The result is more gig work…

Nearly half of millennials agree or somewhat agree with the statement “I regularly run out of money and have to rely on credit cards or family for financial support.”

Please consider Generational Gap Grows: Work & Money Outlook Divided

Job Hopping to Increase Pay or Better Work Balance

• Younger generations continue to drive the Great Resignation: One-third of millennials and 46% of Gen Z have switched employers since the start of the pandemic — a stark contrast compared to 29% of all workers.

• Job-hopping for paycheck-bumping: Younger generations are more likely to say that the best way to increase their earning potential is to change employers every few years, with 41% of millennial workers and 44% of Gen Z workers expressing this belief, compared to 36% of all workers.

• Younger generations look to employers for help: Almost 6 in 10 Gen Z (58%) and millennial (57%) workers believe their employer has a responsibility to help them feel more financially empowered.

• Flexibility strong against the dollar: Conversely, over the past year, 29% of millennials who switched jobs took a pay cut, with more than 1 in 4 millennials who took a pay cut explaining they did so in order to achieve a better work/life balance.

Debt and Financial Goals

Gig Work to Make Ends Meet

• Salary not sufficing: 49% of millennials and 48% of Gen Z don’t believe that a salary is going to be enough to achieve their financial goals.

• Growth in gig work: 70% of all workers have pursued or considered pursuing gig work to supplement their income over the past year. This is even higher among Gen Z (81%) and millennials (77%) — roughly a quarter of whom hope that their gig work will one day be their full-time job.

• Gig work seen as a temporary option: Most workers who are considering or are pursuing gig work (34%) say they are only doing it until their main source of income can fully sustain their financial needs.

Dipping Into Emergency Funds

Need Financial Help

• Looking to others for financial help: Half of millennials say they regularly run out of money and have to rely on credit cards or family for financial support, and 65% of millennials and Gen Z have received financial support in the past two years from either parents, significant others, relatives or grandparents.

• Emergency savings funds in crisis: 50% of all respondents have less than $500 or no emergency savings fund. Nearly 4 in 10 (39%) of both millennials and Gen Z report having no emergency savings at all.

• Debt taking a toll: 55% of millennials say that debt is preventing them from accomplishing personal goals, such as owning a home and having kids; 33% of millennials and 32% of Gen Z say student loan debt is a barrier to accomplishing those personal goals.

• Social obligations turn financial burden: 46% of millennials and 48% of Gen Z say they’d be able to spend more on personal goals if they did not have to spend on friends’ and family members’ life milestones like wedding gifts, baby gifts, or milestone birthday celebrations and gifts.

• Not keeping a budget or prioritizing investing: Nearly 70% of millennials and Gen Z do not keep a formal budget; 44% of Gen Z and 38% of millennials do not invest.

More Female Stress

• A shaky situation: 4 in 10 women (41%) strongly agree that the economic environment has made them more concerned about their financial security (compared to 34% of men). Alarmingly, only 56% of all women have an emergency savings account (compared to 73% of men).

• Income is stretched: More than half of women (53%) say they cannot afford their current lifestyle or are barely getting by — just 40% of men say the same.

• Feeling the stress: More than one-third of women (36%) report experiencing health or mental health issues as a result of financial stress (versus 28% of men). More than 4 in 10 women (45%) say they have trouble sleeping for the same reason (versus 36% of men).

Gig Work Stunner

The stunner to me was the growth in gig work. Many want to work less but are working more because they have to.

81% of zoomers and 77% of  millennials have pursued or considered pursuing gig work to supplement their income over the past year. 

Undoubtedly, it’s not just gig work but rather any part-time work, especially the leisure and hospitality sector.

Act Your Wage 

Yesterday I noted Act Your Wage is the New Meme as Career Ambitions Plunge

There’s no time to do extra unpaid work when you need a second part-time job just to pay the bills. 

This also explains Quiet Quitting, Are You Doing Only What’s Necessary at Work and No More?

Sentiment is pessimistic and many zoomers are flat out giving up on the American dream of owning a home. 

I am going to gather some data from the BLS this week to tie some of these ideas together.

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In the waning days of 2022, one of the most bearish (and accurate, at least as far as last year was concerned) strategists, SocGen’s resident permabear Albert Edwards, laid out what he thinks will be the big surprise of 2023, which will be “a return to deflation fears as headline CPI inflation drops close to, or likely below zero. Investors are already anticipating recession and have an unusually strong preference for bonds.”

Edwards’ also expects that while the current recession and collapse in commodity prices will also cause headline inflation to collapse, core inflation will abate too but remain sticky around 3% due to residual wage-price inflation (justifying the inevitable change in the Fed’s target).

Which, to Edwards, sets us up for the worst possible scenario: a second wave of inflation, just like we saw in the 1970s under the Burns Fed, to wit: “any decline will be purely a cyclical phenomenon rather than a full-blown return to the Ice Age theme” and as a result, “investors have not yet discounted a second secular wave of inflation as we eventually exit this unfolding recession – ie the Great Melt.”

While Edwards is hardly alone in calling for a recession and a deflationary reversal of current soaring prices, following by an even more brutal inflationary wave as Powell reveals he was not Volcker by Burns all along, overnight another bearish icon repeated the exact same sequence of events.

Tweeting late on Monday, Scion Capital’s Michael Burry, aka “the Big Short” said that while inflation has peaked, it is likely to pick up again in response to the coming stimulus which will be unleashed to offset the painful 2023 recession. 

“The US in recession by any definition,” Burry tweeted on Sunday, echoing Albert Edwards verbatim, adding that “Fed will cut and government will stimulate. And we will have another inflation spike.”

Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition. Fed will cut and government will stimulate. And we will have another inflation spike. It’s not hard.

— Cassandra B.C. (@michaeljburry) January 2, 2023

Burry is certainly right about the US being in a recession, especially now that more than half of US states have negative growth, a threshold that has always led to recessions in the past…

… the last, missing piece is the BLS admitting the US labor market is in freefall and now that even the Philadelphia Fed has opened up the pandora’s box over rigged jobs data, it is only a matter of weeks if not days before the Dept of Labor admits it made a “mistake.”

Where Burry is wrong is in expecting a government, or fiscal, stimmy. With Congress now divided at least until 2024, one can kiss any major, multi-trillion injection goodbye until after the next presidential election (absent a war with China of course). Which means the only stimulus for the next 24 months will have to come from the Fed, i.e., monetary, and thus will stimulate risk assets far more than the economy.

This was Burry’s latest warning since September, when the S&P tumbled to its 52-week lows, and when the Big Short predicted more pain for the stock market, saying “we have not hit bottom yet.” However, the weeks following the September dump saw stocks briefly soar into a bull market amid a powerful short squeeze expect a Fed pivot; it remains to be seen if stocks will take out

In the second quarter, Burry put his money where his mouth is, as his firm dumped all of its equity exposure besides one company. One quarter later, Burry was back in the market, adding to his GEO Group stake and opening new positions in 5 companies as we discussed at the time.

Authored by Paul Joseph Watson via Summit News,

Author Paul Ehrlich, whose 1968 book ‘The Population Bomb’ predicted environmental catastrophes that never happened, appeared on 60 Minutes to warn of “the end of the kind of civilization we’re used to.”

Ehrlich’s conversation with CBS host Scott Pelley centered around the narrative that human population growth will be too much for the Earth to sustain, despite the fact that it is set to peak at 9 billion people before rapidly declining.

“Too many people, too much consumption and growth mania” is killing the planet and devastating wildlife according to Ehrlich.

“Humanity is not sustainable. To maintain our lifestyle (yours and mine, basically) for the entire planet, you’d need five more Earths. Not clear where they’re gonna come from,” he claimed.

Paul Ehrlich: “The next few decades will be the end of the kind of civilization we’re used to.”

CBS’s @ScottPelley: “The 5 mass extinctions of the ancient past were caused by natural calamities … humanity may have to survive a 6th mass extinction in a world of its own making.” pic.twitter.com/Vf7DNPLGai

— Tom Elliott (@tomselliott) January 2, 2023

Despite charges of alarmism, the author defiantly asserted, “I was alarmed. I am still alarmed. All of my colleagues are alarmed” (seemingly unaware that the definition of alarmism is to grossly exaggerate something that isn’t true).

“I know there’s no political will to do any of the things that I’m concerned with, which is exactly why I and the vast majority of my colleagues think we’ve had it; that the next few decades will be the end of the kind of civilization we’re used to,” Ehrlich absurdly claimed.

“The five mass extinctions of the ancient past were caused by natural calamities—volcanoes, and an asteroid. Today, if the science is right, humanity may have to survive a sixth mass extinction in a world of its own making,” he added.

Enrivonmental author Michael Shellenberger responded to the segment by documenting how Ehrlich’s claims were “totally & utterly false” and accusing CBS of pushing “apocalyptic pseudoscience.”

Elon Musk, who has warned about the dangers of population decline, agreed, tweeting, “Absolutely.”

Absolutely

— Elon Musk (@elonmusk) January 2, 2023

Ehrlich is still treated as a credible voice by the legacy media despite his previous predictions proving to be completely laughable.

In his 1968 book The Population Bomb, Ehrlich ludicrously claimed “hundreds of millions of people are going to starve to death” by the 1980’s because of overpopulation.

It never happened.

Similarly, in 2004, climate change “experts” claimed that by 2020, “major European cities will be sunk beneath rising seas as Britain is plunged into a ‘Siberian’ climate by 2020”.

It never happened.

In 2013, Al Gore claimed that the Arctic would have “ice free” summers by 2013.

It never happened, in fact measurements taken by the EU’s Earth observation programme last year showed that Arctic sea ice was just 3 per cent below its 30 year average.

None of it ever happens, but that doesn’t stop people like Ehrlich continually spewing doomsday rhetoric in order to advance the narrative that living standards must be drastically reduced in the name of saving the planet.

They should have all been dismissed as wild cranks years ago, but the legacy media is still treating them like they have a shred of credibility left when they clearly don’t.

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FTX founder Sam Bankman-Fried has asked a judge to conceal the identities of two people who will help secure his bail in addition to his parents’ house in Palo Alto, California, Bloomberg reports.

“If the two remaining sureties are publicly identified, they will likely be subjected to probing media scrutiny, and potentially targeted for harassment, despite having no substantive connection to the case,” wrote SBF’s lawyers in a letter filed on Tuesday seeking redactions of the names of the two individuals who intend to sign as sureties to his bail.

“Consequently, the privacy and safety of the sureties are “countervailing factors” that significantly outweigh the presumption of public access to the very limited information at issue,” the letter continues.

Bankman-Fried’s $250 million bail package – granted in his first appearance on US soil since his arrest in the Bahamas, was secured by his parents’ Palo Alto home, which is worth nowhere near that amount. The judge in the case also required that two people of “considerable means,” at least one of whom cannot be a relative, also sign the bond.

Bankman-Fried was granted a $250 million bail package in December, one of the largest in US history. The personal recognizance bond approved by the judge was secured by the equity in Bankman-Fried’s parents home in Palo Alto, California, which is almost certainly not worth anywhere near that amount. But outsized bonds are more a means of establishing harsh financial consequences for bail-jumping and are often backed by assets worth only around 10% of the stated amount. -Bloomberg

The two individuals have not yet signed the bond but intend to do so by the Jan. 5 deadline, according to the letter.

Bankman-Fried is set to appear in a Manhattan federal court on Tuesday to face charges on eight criminal counts ranging from wire fraud to conspiracy to commit money laundering, to conspiracy by misusing customer funds, CNN reports. He is expected to plead not guilty.

He faces 115 years if convicted on all charges.

Authored by Jack Phillips via The Epoch Times (emphasis ours),

The Illinois Supreme Court placed on hold portions of a controversial law know as the SAFE-T Act that would eliminate cash bail for some crimes.

In a ruling on Saturday afternoon—just hours before the law was supposed to be enacted—the Supreme Court placed the cashless bail provision under the SAFE-T Act on hold for the entire state. A ruling from a lower court last week placed that part of the law on hold for dozens of counties, but not all of them.

The law was slated to go into effect on 12:01 a.m. on Sunday, Jan. 1, eliminating cash bail for some crimes. The state Supreme Court ruled that the cash bail measure would take power out of state judges’ hands.

“The emergency motion for supervisory order is allowed,” the Illinois high court wrote. “In order to maintain consistent pretrial procedures throughout Illinois, the effective date of the Pretrial Fairness Act is stayed during the pendency of the appeal … and until further order of this Court.”

In late December, a Kankakee County judge ruled that cashless bail violated the state’s Constitution and would not be applied in counties that filed a lawsuit to block the measure.  Attorney General Kwame Raoul, a Democrat, criticized the ruling and said he would appeal the court ruling.

“Had the SAFE-T Act gone into effect on January 1, 2023, while litigation is pending, the administration of justice in Illinois would have been uneven, thus harming the citizens of the state,” DuPage County State’s Attorney Robert Berlin and Kane County State’s Attorney Jaime Mosser said in a joint statement. The two officials had joined the lawsuit to block the cashless bail provision, and they filed an emergency motion on Dec. 30 to suspend the law pending its resolution.

They added, “We are very pleased with the Illinois Supreme Court’s decision. The equal administration of justice is paramount to the successful and fair administration of our criminal justice system. Today’s decision will ensure that those accused of a crime in Illinois will receive equal and fair treatment throughout the State.”

In a Saturday statement, Raoul wrote that it is “only the Supreme Court” that can decide “the merits will be binding on all Illinois courts.”

“It is important to note that the order issued today by the court is not a decision on the merits of the constitutionality of the SAFE-T Act, and I appreciate the court’s interest in expediting the appeal. We look forward to mounting a robust defense of the constitutionality of the law and ensuring that it goes into effect across the state,” Raoul said after the Supreme Court’s ruling.

Response

Proponents of the law, including Democrat state Sen. Elgie R. Sims, Jr., said that the measure would “fundamentally change” the state’s criminal justice system and claimed that Republican critics of the measure were telling “lies” about the bill when it was being considered in the state legislature.

Read more here…

US and European natural gas prices are sliding as warmer weather reduces demand for the heating fuel, and storage levels remain high. Risks of a global energy crisis are diminishing for now — well — that’s until the next cold blast strikes. 

The polar vortex that sent much of the Lower 48 into a deep freeze at the end of 2022 ended last week. Now, much of the US will see warmer-than-normal temperatures through mid-Jan. 

The National Oceanic and Atmospheric Administration’s latest 6-10 Day Temperature Outlook shows that nearly all Lower 48 will experience above-average weather. 

NOAA’s 8-14 Day Temperature Outlook suggests the same. 

Weather data via Bloomberg shows Lower 48 temperatures are expected to remain above a 30-year average through mid-month. 

And this will reduce heating demand. 

US NatGas storage entered into a drawing period in mid-Nov. and has been sliding since.  

A weaker heating demand outlook has sent US NatGas prices down nearly 9% to $4.062 per million British thermal units on the New York Mercantile Exchange in early Tuesday trading. Prices are back to levels not seen since early February 2022. 

Across the Atlantic, EU NatGas touched the lowest levels since the start of the Ukraine war. 

“The risk of extreme market tightness that people were worried about before the winter started seems low now,” BloombergNEF’s Abhishek Rohatgi wrote. 

Warmer weather in Europe has eased concerns about blackouts and rationing as stockpiles increase:

In fact, Europe has been able to add more gas into storage in the last few days amid a mix of curbed heating needs and typically lower consumption during the holiday season. -Bloomberg

EU NatGas storage increased last week. 

Temperatures across Central EU are expected to hold above seasonal levels through at least the mid-month. 

Sign of relief worldwide: NatGas prices slide in the US, EU, and Asia. 

We noted days ago the risks of a collapsing polar vortex in the Arctic could send parts of the EU into a chill later this month. And it’s only a matter of time before cold weather returns to the US. 

Authored by Lance Roberts via RealInvestmentAdvice.com,

For many investors who started their investing journey following the financial crisis, forward returns will be disappointing compared to the last decade. But it won’t be solely due to high valuations.

I recently discussed why the next “Secular Bear Market” may have started, which touched on the issues of valuations and forward returns. To wit:

“Three items drive secular bull markets: 1) valuation expansion, 2) earnings growth and 3) falling interest rates. The most prominent driver of secular returns are periods of valuation expansion and contractions.”

“The chart above shows the history of secular market periods going back to 1871 using data from Dr. Robert Shiller. You will notice that secular bull markets begin with CAPE valuations around 10x earnings or even less. Secular bear markets tend to start with valuations of 23-25x earnings or greater. (Over the long-term, valuations do matter.) Most notably, secular BEAR market periods are defined by near-zero returns during the valuation contraction process.”

As we know, a decent correlation exists between future returns and current valuations

As we have often stated, such does not mean that every year over the next decade will foster low returns. It only suggests that the total return will be low over the entire decade. History shows that such is the case.

“Notably, as an investor, only 5-periods are secular bull markets (where prices are increasing) over the last 150 years. Those five periods account for 100% of all the index gains. In other words, the outcome was disappointing if you invested on a buy-and-hold basis during any other period.”

However, another reason forward returns will likely be substantially lower than in the past has nothing to do with valuations.

The Monetary Illusion Of Growth

How often have you seen the following chart presented by an advisor suggesting if you had invested 120 years ago, you would have obtained a 10% annualized return?

It is a true statement that over the very long term, stocks have returned roughly 6% from capital appreciation and 4% from dividends on a nominal basis. However, since inflation has averaged approximately 2.3% over the same period, real returns averaged roughly 8% annually.

The chart below shows the average annual inflation-adjusted total returns (dividends included) since 1928. I used the total return data from Aswath Damodaran, a Stern School of Business professor at New York University. The chart shows that from 1928 to 2021, the market returned 8.48% after inflation. However, notice that after the financial crisis in 2008, returns jumped by an average of four percentage points for various periods.

After more than a decade, many investors have become complacent in expecting elevated rates of return from the financial markets. During that period, investors developed many rationalizations to justify overpaying for assets.

However, the problem is that replicating those returns becomes highly improbable unless the Federal Reserve and Government commit to ongoing fiscal and monetary interventions. The chart below of annualized growth of stocks, GDP, and earnings show the outsized anomaly of 2021.

Since 1947, earnings per share have grown at 7.72%, while the economy has expanded by 6.35% annually. That close relationship in growth rates is logical, given the significant role that consumer spending has in the GDP equation.

The market disconnect from underlying economic activity over the last decade was due almost solely to successive monetary interventions leading investors to believe “this time is different.” The chart below shows the cumulative total of those interventions that provided the illusion of organic economic growth.

Over the next decade, the ability to replicate $10 of interventions for each $1 of economic seems much less probable.

A Return To Normal

Over the last decade, massive monetary interventions distorted financial markets from their respective underlying economic linkages. As noted above, the deviation from long-term growth trends is unsustainable, particularly when factoring in demographic trends.

Over the next decade, the elderly population will begin systematically withdrawing assets from the market for retirement. Given the rise in individuals approaching retirement against a declining working-age population, the problems for pension and welfare systems become more apparent.

Nonetheless, economic growth will run below previous trends between an aging demographic of accumulators becoming net distributors of assets and less monetary support in the future.

Therefore, returns must revert to historical norms. Such will result from profit margins and earnings returning to levels that align with actual economic activity.

Of course, one must also consider the drag on future returns from the excessive debt accumulated since the financial crisis.

That debt’s sustainability depends on low-interest rates, which can only exist in a low-growth, low-inflation environment. Naturally, a low inflation and slow growth economy do not support excess return rates.

It is hard to fathom how forward return rates will not be disappointing compared to the last decade. However, those excess returns were the result of a monetary illusion. The consequence of dispelling that illusion will be challenging for investors.

Does this mean investors will make NO money over the decade? No. It means that returns will likely be substantially lower than investors have witnessed over the last decade.

But then again, getting normal returns may be “feel” very disappointing to many.