2022: Year in Review
Reviewing the key themes from 2022 through C-suite quotes
Throughout 2022, the Transcript chronicled the dynamics of the global economy by tracking the words of business and economic leaders. As we’ve done in past years, we’re winding down 2022 with a review of how the year unfolded. 2022 was a year that was dominated by the Federal Reserve’s actions to fight inflation. Inflation was already high coming into 2022 and the Fed was viewed as behind the curve. The Fed had stayed dovish throughout 2021 as it viewed inflation as “transitory.” However, in 2022 the Fed turned hawkish.
At the start of the year monetary policy was still very accommodative. Short-term interest rates were at zero, and the Fed was pursuing Quantitative Easing. Over the course of the year, the Fed methodically raised interest rates and continually increased its forecast of how high they would need to go. Jerome Powell reminded markets at every opportunity that the Fed would “stay the course” and fight inflation “until the job was done.” The Fed’s actions led to recession worries throughout 2022. Despite these worries, the consumer remained resilient for most of the year and the recession has not yet materialized. Equity markets sold off hard early in the year, but have remained more or less range-bound since June once a recession had already been priced in.
A strong summer rally erased much of the year’s losses. It was fueled by signs that we could avoid recession. But the rally petered out in the fall as the Fed renewed its fight on inflation. As the year ends, the consumer appears to be reaching a point of exhaustion. For our part at the Transcript, we’re pleased with the job that we did in tracking these dynamics for our readers throughout the year. We focused on the important storylines each week, dodged most head fakes, and quickly adjusted to new data. We also chronicled many important industry-specific catalysts like subscriber fatigue at Netflix, slowing PC sales, and a deterioration in housing markets.
Our goal in this work is to help find investment catalysts. Judging by reader growth, we seem to be meeting our goals. This year our total readership more than doubled and our premium readership increased by nearly 3x.
If we’ve helped you make money this year and you’re not already a premium subscriber, please subscribe. Our premium subscribers enjoy additional analysis and specific discussion of investment catalysts.
Thanks again and Happy Holidays to all of our readers. We look forward to chronicling the economy again in the New Year!
At the start of 2023, Omicron was surging
"As everybody, we've seen a slowdown in procedures in December due to Omicron, and we don't think that that will change versus pre-COVID levels until we go through the Omicron surge," - Johnson & Johnson (JNJ 0.00%↑) CEO Joaquin Duato
But the economy stayed strong
“We are watching the impact of Omicron on consumer spending. And while there is some softening in restaurant, travel, and entertainment in recent weeks, overall spending remained strong in the first week of January with credit card up 26% and debit card up 29% versus the same week in 2020." - Wells Fargo & Company (WFC 0.00%↑) CEO Charles Scharf
We all learned to live with COVID
"I'm encouraged by data that shows that the Omicron wave is less severe and has already peaked in some countries. Therefore, it is expected to have less of an economic impact. My view is that COVID-19 will be endemic and as a society, we will find a way to live with it, supported by the efficacy of vaccines and new treatments." - Goldman Sachs (GS 0.00%↑) CEO David Solomon
Inflation was excessive
“I am worried about inflation. Inflation is excessive -- higher inflation means higher interest rates higher interest means lower asset prices and that's what's going on right now and higher interest rates could also throttle the economy" - Oaktree Capital Management Co-Founder Howard S. Marks
Despite high inflation, the Fed didn’t raise interest rates in January. It signaled that it would start in March.
“I would say that the Committee is of a mind to raise the federal funds rate at the March meeting, assuming that conditions are appropriate for doing so. We have our eyes on the risks, particularly around the world. But we do expect some softening in the economy from Omicron, but we think that should be temporary.” - US Federal Reserve Chair Jerome Powell
Capital markets got spooked
“The stock market needs a strong economy to justify its prices. Ιt is overvalued. There are sectors that are overvalued, sectors that are going to respond dramatically to higher interest rates, sectors that may be worth more than they are today. And that’s why there’s a lot of volatility; you see it now every day in the marketplace. The same thing is happening in the bond market" - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon
The Fed was behind the curve
"...here we are on the fourth-quarter call and the Fed has finally woken up to the problem that they should have foreseen a year ago. The problem now is that the Fed is taking its sweet time putting in place their action plan to deal with the skyrocketing inflation and the overheating economy. Instead of doing something about the 7% year-over-year increase in the CPI, the Fed is only talking about it -- without quicker and more decisive action by the Fed, it will be seen that they are fighting a forest fire with a water pistol." - Loews (L 0.00%↑) CEO James Tisch
But the consumer continued to spend
"Inflationary pressures continue but have yet to curtail demand, so we remain optimistic about the underlying strength of the industry -- An $80,000 pool doesn't buy you as much as it did a few years ago, but it really has yet to curtail demand." - Pool (POOL 0.00%↑) CEO Peter Arvan
And then Russia invaded Ukraine
"...when it looked like things were starting to clear up a bit, you know, Russia went to war." - Martinrea International (MRE) Executive Chairman Robert Wildeboer
The world tried to make sense of the senseless invasion
“...the senseless pain, the suffering -- it's just unbelievably difficult to see what is going on in the world -- our heart is continuing to break” - Salesforce (CRM 0.00%↑) CEO Marc Benioff
Markets tried to adapt to a new kink in the global supply chain
"This conflict will have an impact on the supply chain and logistics market. We've already seen a few consequences in the early days. The Ukraine ports have closed impacting the flow of goods. Russian forces have destroyed some Ukrainian air cargo freighters, sanctions will likely impact operations at ports and other countries -- Russia and Ukraine contribute oil and natural gas to the energy market. And with the supply being curtailed, there could be a meaningful impact on energy prices and the prices of other commodities." - Descartes Systems (DSGX 0.00%↑) CEO Edward Ryan
All eyes were on Ukraine. The war created a humanitarian crisis.
"...it really has upset the world in a huge way. And I think we're only on the 11th day of this. It has occupied my time pretty much 24/7. As the week last week went on, I'd actually say it's been crazy -- we've dispatched lots of people to the area -- it's an awful, awful situation and how long it goes on and where it stops and where it goes is anybody's guess at this point." - Visa (V 0.00%↑) CEO Alfred Francis Kelly
It also brought inflation into the political spotlight
"Today’s inflation report is a reminder that Americans’ budgets are being stretched by price increases and families are starting to feel the impacts of Putin’s price hike. A large contributor to inflation this month was an increase in gas and energy prices as markets reacted to Putin’s aggressive actions,” - US President Joe Biden
How would the Fed respond?
"And the big unknown is ECB and other federal, what exactly is going to be their policy. And I just believe, I’m not an economist, but I think that they’re going to have to back down. I just don’t see the political will, particularly what’s going on. This tragedy – I mean what’s unfolding in Ukraine, I just don’t – I think they’re going to have to back off." - Korn Ferry (KFY 0.00%↑) CEO Gary Burnison
Jerome Powell turned hawkish
"I just wanted to say that as I looked around the table at today’s meeting I saw a committee that’s acutely aware of the need to return the economy to price stability and determined to use our tools to do exactly that--We’re not going to let high inflation become entrenched. The costs of that would be too high and we’re not going to wait so long that we have to do that." - US Federal Reserve Chair Jerome Powell
Inflation was running hot
"U.S. inflation hit a 40-year high. Inflation is high and broad and one need not look any further than the corner gas station to see it." - Cintas (CTAS 0.00%↑) CEO Todd Schneider
“I think it's fair to say. We expect the inflation to be significant” - General Mills (GIS 0.00%↑) CEO Jeff Harmening
Prices were going up everywhere
“...you have this kind of impact from freight and raw materials and price increases from suppliers and so on and so forth, I mean, you can say, oh, we're big. We're – we can absorb it. That's kind of BS on what's happening in the world today like prices are going up everywhere. And if they're not, earnings are going to go down." - RH (RH 0.00%↑) CEO Gary Friedman
Golf dues were rising at local country clubs. The Fed was finally activated.
"Inflation is running far too high, and I am acutely concerned about this -- one of our contacts, for instance, mentioned whopping membership fee increases at his golf club, suggesting this summer may be a good time to play at your local muni instead” - Federal Reserve Bank of Philadelphia President Patrick Harker
They started to signal that rates could go up at a faster pace. 50 bps per meeting
"I am very open to going faster. Given the level of uncertainty that we are facing in this economy, I wouldn’t take 50 basis points off the table for the next meeting. I am not committing to that right now. I expect a series of deliberate, methodical hikes as the year continues and the data evolve” - Federal Reserve Bank of Philadelphia President Patrick Harker
But, fueled by the Covid stimulus, the consumer was unstoppable
"What I have pointed out in my letter is very strong underlying growth, right now, which will go on. It's not stoppable. The consumer has money. They pay down credit card debt. Confidence isn't high, but the fact that they have money, they're spending their money. They have $2 trillion still in their savings and checking accounts, business are in good shape. Home prices are up. Credit is extraordinarily good." - JPMorgan(JPM 0.00%↑) CEO Jamie Dimon
The Fed resolved to march towards a neutral monetary policy. They estimated that they would have to raise rates to 1.75% - 2.5% by the end of the year.
"I think I'm in the same areas as my colleagues philosophically. I think it's really important that we get to neutral and do that in an expeditious way. I really have us looking at one and three-quarters by the end of the year, but it could be slower depending on how the economy evolves and we do see greater weakening than I'm seeing in my baseline model. This is one reason why I'm reluctant to really declare that we want to go a long way beyond our neutral place, because that may be more hikes than are warranted given sort of the economic environment." - Atlanta Fed President Raphael Bostic
"I like to think of it as expeditiously marching towards neutral. It's clear the economy doesn't need the accommodation we're providing. And so in order not to tip the economy over by reacting abruptly, we need to take a measured pace. But that measured pace still gets us up to the neutral rate, which I put at about 2.5% by the end of the year -- really to assure the American people that we're going to get inflation back down, we're going to aim for our target." - San Francisco President Mary Daly
There were signs that inflation was starting to peak
"...we believe that we're at peak or have passed the peak of wage inflation in the U.S. It's still high, but when we look at some of our most recent trends, we can see some easing off in the growth rates, which we believe is positive overall -- as it relates to the U.S. specifically, we are starting to see a little bit of an easing and we believe that we've seen the peak of wage increases." - ManpowerGroup (MAN 0.00%↑) CEO Jonas Prising
But the level of inflation was still far too high. The FOMC raised rates by 50 bps.
“Inflation is much too high and we understand the hardship is causing, and we're moving expeditiously to bring it back down. Against This Backdrop, today the FOMC raised its policy interest rate by 1/2 percentage point and anticipates that ongoing increases in the target rate for the federal funds rate will be appropriate.” - US Federal Reserve Chair Jerome Powell Press
Jerome Powell began to voice that restrictive policy would be necessary
“So I think it's certainly possible that we'll need to move policy to levels that we see as restrictive as opposed to just neutral. We can't know that today. That decision is not in front of us today. If we do conclude that we need to do that, then we won't hesitate to do it.” - US Federal Reserve Chair Jerome Powell Press
The era of low rates was coming to an end
"We’ve been accustomed to 40 years, basically, of one cycle, the whole cycle that we covered in the last quarterly review. Declining interest rates, declining tax rates, all these trends - - it’s all come to an end. Not just an end, it’s actually changing. But people haven’t wrapped their heads around that yet. It felt normal because there were 40 years of it. If you’re 50 or even 60 years old, in terms of being conscious about economics, that’s all you knew. But it’s going to be different now. There’s going to be a new cycle" - Horizon Kinetics (INFL 0.00%↑) Co-Founder Steven Bregman
The change would be painful
"An entire generation of entrepreneurs & tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run. The "unlearning" process could be painful, surprising, & unsettling to many. I anticipate denial." - Benchmark Capital General Partner Bill Gurley
Capital markets tightened, but the Fed was unfazed
"...the markets are orderly, they are functioning. I think they are processing the way we are thinking. And I think the idea is financial conditions will be tightened to the point where it can still be positive, but muttering to the support -- to the point where supply and demand to be in alignment, and get inflation back down to 2%." - US Federal Reserve Chairman Jerome Powell
Jerome Powell wanted markets to know that the Fed was serious
"We have the tools and the resolve to get inflation back down. No one should doubt our resolve in doing that. I think if you look at how quickly we have moved in the last few months, you will see that it has tightened a bit. We need to see inflation coming down in a clear and convincing way. We are going to keep pushing until we see that." - US Federal Reserve Chairman Jerome Powell
Jamie Dimon warned that a financial hurricane was brewing
“...look, I'm an optimist. I said there's storm clouds, they're big storm clouds, they're -- it's a hurricane It's, we -- right now it's kind of sunny, things are doing fine, everyone thinks the Fed can handle this. That hurricane is right out there down the road coming our way. We just don't know if it's a minor one or Superstorm Sandy or -- yes, Sandy or Andrew, or something like that." - JPMorgan Chase (JPM 0.00%↑) CEO Jamie Dimon
Inflation was still raging
“The all items index increased 8.6%for the 12 months ending May, the largest 12-month increase since the period ending December 1981 -- The increase was broad-based, with the indexes for shelter, gasoline, and food being the largest contributors.” - U.S. Bureau of Labor Statistic
Political pressure intensified
“It’s pretty clear that peak-inflation theory, like ‘transitory’ theory, is kind of wrong. The Fed’s forecast from March, saying that inflation would be coming down to the 2s by the end of the year was, frankly, delusional when issued, and looks even more ridiculous today -- Those mistakes mean that they don’t fundamentally have credibility. The debate has been between 25 and 50 basis point moves a couple of months from now. I think a more fruitful deliberation would be between 50 and 75 basis points." - US Treasury Former Secretary Larry Summers
And yet the consumer remained resilient
"...at this point, the consumer is still spending pretty robustly -- we're still seeing very healthy balance sheets and healthy spending" - Bank of America (BAC 0.00%↑) CFO Alastair Borthwick
This was contrary to the Fed’s goals
“There’s no sign of a broader slowdown that I can see in the economy -- And that desired effect is we’d like to see, you know, demand moderating. Demand is very hot, still, in the economy” - Federal Reserve Chair Jerome Powell
We were watching for signs that demand was softening
“Our ability to pass pricing on to the market as an example, because of inflation, continues to be more challenged, obviously, with consumer demand softening significantly today versus a year ago” - Winnebago Industries (WGO 0.00%↑) CEO Michael J. Happe
"We got sequentially better on comps throughout the quarter, which is encouraging, but that being said, I think the consumer is softer," - CarMax (KMX 0.00%↑) CEO Bill Nash
People were growing increasingly worried about a recession
"The outlook since our last update in April has darkened significantly. We are in very choppy waters. The risk has gone up so we cannot rule it out. It's going to be a tough '22, but maybe even a tougher 2023. Recession risks increased in 2023" - IMFManaging Director Kristalina Georgieva
But economic activity remained strong
"While all of this continues to put pressure on our customers, we are not seeing the evidence of an imminent recession that is suggested by the headlines -- Order levels, backlogs, and overall activity remain strong. Most segments of the industrial economy are still seeing robust demand patterns, as evidenced by the industrial production index." - MSC Industrial Direct (MSM 0.00%↑) CEO Erik Gershwind
Consumers were shifting spend from goods back to services
“Sector by sector, we’re seeing a varied picture of how inflation is impacting essential vs discretionary consumer spending. One notable highlight is that travel sectors such as airlines and lodging continue to show signs of strong demand.” - Mastercard (MA 0.00%↑) Senior Advisor Steve Sadove
The data did not suggest that the US was on the cusp of a recession
"Little of the data I see tells me the U.S. is on the cusp of a recession. Consumer spending remains well above pre-COVID levels with household savings providing a cushion for future stress -- So, while a recession could indeed take place over the next two years in the U.S., it's highly unlikely to be a sharper downturn as others in recent memory." - Citigroup CEO Jane Fraser
Wall Street appeared to be disconnected from Main Street
"I just spent 2.5 weeks in the U.S., there is a little bit of a disconnect between Main Street and Wall Street in terms of what you see." - Larsen & Toubro Infotech (LTI) President of Sales & Whole-Time Director Sudhir Chaturvedi
No downturn was imminent
"...behavior and trends from our consumer loan portfolio currently do not suggest that a downturn is imminent. Our credit metrics remain strong and sales are robust, even as our customers maintain high payment rates. Similarly, most labor market measures indicate employment conditions remain broadly supportive of consumer financial health and credit performance." - Discover Financial Services CEO Roger Hochschild
Capital markets had already priced in a pretty bad recession
"Between the Fed and the media, I think you've [priced in] a pretty bad recession. So people kind of as I said if it's a hurricane they board it up, they put the plywood up and they've gotten ready for the hurricane." - Moelis & Co CEO Ken Moelis
Optimism prevailed
"I would say the prevailing sentiment right now continues to be optimism. I’d say they characterize the financial outlook for their businesses as good or excellent. Obviously, they are mindful of the uncertainties around the overall economy, but they are still investing in growth, and they have confidence in the second half of 2022" - STORE Capital EVP, Underwriting & Portfolio Management Craig Barnett
Cost pressures were falling
"We are seeing, as Mark mentioned in his prepared remarks, some green shoots, where costs are already coming down, including fuel, including food costs, that's strong" - Norwegian Cruise Line CEO Frank Del Rio
But inflation remained high
"We have seen some ridiculous inflation in the last 4 or 5 months. I mean if you don't think I'm serious, just drive to McDonald's and buy your kid a quarter pounder with cheese and fries and see what you pay for that" - Jack Henry & Associates CFO Kevin Williams
And at Jackson Hole, Jerome Powell signaled that the Fed was not ready to pause
"While the lower inflation readings for July are welcome, a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down -- Our responsibility to deliver price stability is unconditional." - US Federal Reserve Chair Jerome Powell
The Fed was ready to keep raising rates until the job was done
"It is very much our view, and my view, that we need to act now forthrightly, strongly, as we have been doing, and we need to keep at it until the job is done" - US Federal Reserve Chair Jerome Powell
Higher rates were still needed
“We are in this for as long as it takes to get inflation down -- So far, we have expeditiously raised the policy rate to the peak of the previous cycle, and the policy rate will need to rise further.” - US Federal Reserve Vice Chair Lael Brainard
FedEx warned about deteriorating macroeconomic trends
"Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S -- The weekly numbers are not looking so good, so we just assume at this point that the economic conditions are not really good. We are a reflection of everybody else’s business, especially the high-value economy in the world” - FedEx CEO Raj Subramaniam
But a large part of this was due to the consumer shifting from goods to services
"If you look across categories, as you might expect, people have switched from, as they say, buying things to doing things. And sort of buying goods, people are into experiences -- They may be buying different things, but nominal levels of spending have stayed quite stable, and that's largely true around the world." - Visa CFO Vasant Prabhu
The Fed began to raise rates by 75 bps. There wasn’t any painless way to squash inflation.
"We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t. So what we need to do is get rates up to the point where we’re putting meaningful downward pressure on inflation, and that’s what we’re doing -- we need to complete this task” - Federal Reserve Chair Jerome Powell
They also raised their forecast for interest rates
“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy. As shown in the SEP, the median projection for the appropriate level of the federal funds rate is 4.4% at the end of this year, one percentage point higher than projected in June.” - Federal Reserve Chair Jerome Powell
The “Fed put” was reversing
“All those factors that cause a bull market, they're not only stopping, they're reversing. Every one of them. We're going from QE to QT unless you live in England this week. They're really unfolding. So when I put all of that together -- we've had a hurricane behind us for 30 or 40 years, and it's reversing, and I wouldn't be surprised -- in fact, it's my central forecast -- the Dow won't be much higher in ten years than it is today” - Duquesne Family Office CEO Stanley Druckenmiller
Markets were stressed
"Early signs of distress. So you saw it. This again is fairly typical, markets go down. For, people forecast the economy, et cetera. The IPO market closes first. That's happened. High yield closes second and structured credit. That's happened for the most part. Things can get done and then it starts to affect other credit. You saw with the gilt markets here. You see a lack of liquidity and a lot of markets, a lot of intermediaries can intermediate like we used to because of regulations. It is going to happen. If you make a list of all the prior crises, sitting here, we would not have predicted where they came from. Though I think you can predict this time, that probably will happen. And so I'd be, if I was out there, I'd be very cautious. If you need money, go raise it" - JPMorgan Chase CEO Jamie Dimon
A recession appeared likely
“I don’t know whether it started now or it started two months ago. We always find out and we are always surprised at when the recession officially starts, but I’m assuming we are going to go into one.” - Hedge Fund Manager Paul Tudor Jones
Companies started to prepare more actively for a recession
"I think the psychology has changed dramatically because of all this aggressive Fed action. So I've done a good job of not answering the question. If you had to ask me last quarter what's the probability of a recession in the next year, I would have told you 90-10. Today, I would go 60-40 or maybe 50-50. I think we're much closer in the U.S. I think in Europe, we will go into a very slight shallow recession." - Prologis CEO Hamid Moghadam
It was time to batten down the hatches
"The probabilities in this economy tell you batten down the hatches" - Amazon Founder Jeff Bezos
Markets started to become optimistic that the Fed would slow its interest rate increases
"...our view is that Fed funds are going to peak sometime in the first quarter of 2023. But the headwinds that we’ve got now are not just going to disappear overnight. We think that it’s going to take into early 2023 to resolve some of that, and we’re still going to have a relatively tough issuance comp in the first quarter." - Moody's CEO Rob Fauber
The Fed raised rates by another 75 bps. They confirmed that rate increases would slow but reiterated that pace isn’t as important as how high they would rise.
"At some point, as I’ve said in the last two press conferences, it will become appropriate to slow the pace of increases -- that time is coming, and it may come as soon as the next meeting or the one after that -- To be clear, let me say again, the question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restricted, which really will be our principal focus." - Federal Reserve Chair Jerome Powell
Inflation started to show signs of cooling
“The all items index increased 7.7% for the 12 months ending October; this was the smallest 12- month increase since January 2022.” - The US Bureau of Labor Statistics
"Jon, we expect inflation to come down slightly in the fourth quarter, right? We started to see that trend in the third quarter already, right? We had 15% commodity inflation that was following about 19% commodity inflation in quarter 2. On the labor side, we also got a slight improvement. We were -- labor inflation was a little bit north of 6%. Last quarter, we were sitting in the 11% to 12% range." - Wendy's CFO Gunther Plosch
But there were also signs that the consumer was starting to fade
“Regardless of income levels, families are more price-conscious now" - Walmart (WMT 0.00%↑)CEO Doug McMillon
“...our guests became increasingly price-sensitive and concentrated their discretionary spending on items on promotion, most notably in the latter weeks of the quarter” - Target (TGT 0.00%↑) EVP & CFO Michael J. Fiddelke
“We're seeing a reverting back more to a pre-pandemic level of credit card sales. So we've seen that shift back. And in that particular case, the consumer is working through any of the excess savings or cash that they have, they're now leveraging and utilizing credit more consistent with pre-pandemic. So we're very in tune with that." - Tractor Supply CFO Kurt Barton
Excess savings have been starting to dwindle
"I think it's still pretty tough out there for the consumer. I think they've held on for a pretty long time and they've kind of blown through savings, taking up debt on their credit cards. They're starting to feel it. And I think they're looking for ways to cut back on some expenses." - Match Group COO & CFO Gary Swidler
There’s a slowdown happening. No question about it.
"There is a slowdown happening. There's no question about it. When you watch CNBC and Bloomberg and read the newspapers, it can be a little bit confusing because of the slowdown across industries. When we look at our own consumer spend information and we talk to the companies that we bank, there are some that are doing quite well, and there are some that are struggling more -- Net-net-net, the growth is shrinking that we've seen in card, albeit there's still growth. Debit card spend is about flat with transactions being down a little bit, offset by inflation” - Wells Fargo (WFC 0.00%↑) CEO Charles Scharf
December 19
But the Fed still has a job to do
“We are taking forceful steps to moderate demand so that it comes into better alignment with supply. Our overarching focus is using our tools to bring inflation back down to our 2% goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a sustained period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.” - Federal Reserve Chairman Jerome Powell