It’s Been Interesting

A look back at the year in finance, banking, and crypto ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 29, 2022

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TOGETHER WITH

Hello and welcome back to The Daily Upside.

For the final week of 2022, we will be bringing you some retrospectives on the biggest stories of this year, and on Friday, we’ll publish our Winners and Losers of 2022 special.

Today, we take a look at how the world of finance fared this year…and, yeah, we’re going to have to talk about crypto, so consider this a trigger warning.

Money, It’s Not So Cheap Anymore

Photo Credit: Wikimedia Commons

But first, let’s play a quick game: Close your eyes and think of the five biggest business stories you remember from this year. Got your five? Ok. Now pick one that wasn’t directly impacted by interest rates soaring 4.5% in these last 12 months.

Yeah, not so easy, is it?

After more than a decade of historically low-interest rates, cheap money became the “new normal” on both Wall Street and Main Street, but with inflation rising at the end of 2021, the Federal Reserve made off with the punchbowl and made rising rates the overriding narrative of 2022. Easy lending spawned a bunch of “fun” things like meme stock trading, SPACs, and cryptocurrency alternate universes, but the tightest rate environment since 2007 has taken all the fun out of fungible.

Jumpin’ Jay Powell’s Thrillin’ Rates Rollercoaster

After prices rose more than slightly to start 2022, a January market sell-off made it clear that inflation and interest rates were about to do a dance. That prediction did not disappoint:

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When inflation jumped from 7.5% to 8.5% between January and March, Fed chair Jay Powell and his board responded by nudging interest rates up 1.75% in the spring, shaking an already spooked market to its core. In May, the NASDAQ sold off by 4.3% In one day.

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When inflation hit a scorching 9.1% by July, the Fed clapped back with an immediate 0.5% increase. Markets, once again, had something of a cow even though investors had avoided their summer nightmare of a full 1% increase.

The fallout from the growing recessionary fears could be seen around Wall Street, with private equity behemoth SoftBank posting a whopping $27 billion loss in May, and totemic hedge fund Tiger Global reportedly losing more than half of its assets by June. In the world of banking, a painfully dramatic restructuring at Credit Suisse was another signal that the salad days were over, even as inflation worries ebbed and rate hikes shrunk to end the year.

Batten Down the Hatches

Despite healthy consumer spending and those aforementioned less painful rate hikes, executives from pretty much every major financial institution ended the year wearing sandwich boards and screaming “THE END IS NIGH!” as they claim to foresee a deeper recession for 2023.

A Storm is Coming

Doomsayer-in-chief JP Morgan’s Jamie Dimon told CNBC that rising interest rates and inflation “may very well derail the economy and cause a mild or hard recession” by the middle of next year. Not to be outdone, Ark Invest’s Cathie Wood tweeted that the Fed’s persistent rate hikes today mirror the lead-up to the Wall Street Crash of 1929. And then there’s Bridgewater’s Ray Dalio, who has commissioned the building of a giant boat to carry two of every animal…

OK, that last one is fake [he’s building private submarines], but the economic apocalypse sentiment has clearly permeated the top ranks of the world’s biggest companies, and confidence has sunk lower than in 2008. A recent survey from the Conference Board found that nearly 100% of CEOs in the US and Europe are bracing for recession. And with that mindset has come plenty of pink slips.

Groups like Goldman Sachs, Wells Fargo, and HSBC have already announced giant waves of layoffs with a combined total in the thousands. Credit Suisse, which has had a rougher year than most, announced it will be dismissing 2,500 employees by the end of the year and a total of 9,000 by the end of 2025. The survivors don’t have much to look forward to. Bloomberg reported revenue from dealmaking and sales of new securities at the US’ five largest banks fell 47% in the first nine months of this year, meaning bankers will likely take home much smaller bonuses.

It Could Clear Up

Not everyone’s a gloom-monger. BlackRock’s Larry Fink for one thinks Wall Street’s visions of an economic wasteland are exaggerated. “We’re going to have rates fundamentally higher, they’re not going to go down,” he said at a recent DealBook Summit. “[But] we’re going to enter a period of more what I would call malaise.” That sounds bad, but hardly cataclysmic.

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And Then There Was Crypto

Larry Fink’s optimism might be at least partly explained by the fact that he isn’t neck-deep in crypto. If any one sector in finance signaled the end of excess, it was the world of digital currencies.

The overall crypto market plummeted 75% from its 2021 peak this year, falling below its vaunted $1 trillion market cap and creating an environment of unregulated panic among those still holding the blockchain bag… then there was also that little sideshow known as FTX.

Panic at the DeFi Disco

In what should have maybe been a bigger indicator at the time, Treasury Secretary Janet Yellen warned in April that the crypto market would soon come under tighter regulatory scrutiny as prices began their downward spiral. Major crypto firms pulled back on their huge marketing budgets by summer, so following Crypto.com’s star turn in Super Bowl LVI commercials, crypto companies cut ad spending by 90% in June.

The fast-falling price of Bitcoin and its pals spooked most of the finance world, but some pockets of Silicon Valley hung in. VC firm Andreessen Horowitz defiantly raised $4.5 billion for a fund targeting crypto’s “Golden Era” in May, when the price of crypto was already down 37% for the year. That faith seemed even more misplaced when Andreessen Horowitz’s most successful crypto play, FTX, was revealed to be a spectacular Ponzi scheme in November, plunging a $32 billion crypto exchange and sector lynchpin into almost instantaneous bankruptcy.

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FTX founder and CEO Sam Bankman-Fried went from hero to zero in a matter of hours as his alleged fraud torpedoed the entire crypto market. The fall of FTX spurred a chain reaction of bankruptcies across the sector thanks to FTX-linked entities owing $3.1 billion to their 50 largest unsecured creditors.

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SBF’s shambolic tumble from grace was another blow to the value of the crypto market, which will end 2022 more than $2 trillion below its peak valuation in November 2021.

Is there hope for crypto? Well, there very well might be, but it’s coming from the last place that zealots of decentralized finance would want. Goldman Sachs disclosed in December that it plans to spend tens of millions getting active in crypto companies. That’s a rounding error for a company the size of Goldman, but it shows that the big fish of traditional finance believe the bruised and battered body of crypto is showing signs of life, which is more than you can say for SPACs and meme stocks. Still, it’s far from a golden era, so don’t expect the old guard to don cargo shorts and end their relationships with their barbers.

Extra Upside

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That stocking full of punishment might be your best investment. Coal prices triple in 2022.

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“Umm, you guys…” Internal memos show Southwest execs saw bomb cyclone operational breakdown heading their way.

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Over 50% of car trips in the US are under three miles. So instead of full-size gas guzzlers, the car industry is working toward vehicles that are compact, efficient, and affordable. Currently parked at $1 billion, the market for micro cars – dubbed “the next big thing” by McKinsey – is predicted to hit $100 billion by 2030. And who is at the wheel of this massive opportunity? Eli Electric. With a category-defining design and surging demand in Europe, Eli Electric will soon pilot in the US. Fundraising is at $3 million and counting – join the 2,700 other investors before it closes.

Just For Fun

Rare Partnership

Frozen falls.

Written by Griffin Kelly and Thornton McEnery

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