Reality Is A B!+@#

 Hello All, hope Santa was kind and y'all found something better than a lump of coal in your Christmas stocking - markets sure didn't.

I'm bemused to read the usual end of the year articles on markets: "Annus Horribilis", "Good Riddance To '22", etc.  Was 2022 such a bad year? Yes, if you look at 12 months only it was.  Everything from stocks, bonds, cryptos, and even real estate in some areas, suffered negative returns when measured from top to bottom.  But I think this is misleading and a roundabout way of saying/hoping that 2023 will be much better. "Can't have two bad years in a row, can we?" is the inference. I disagree.

Why? Because 2022 came after a period of eye-popping rallies in everything, including ridiculous items like meme stocks, NFTs and SPACs, all soaring on the back of money creation on an unprecedented scale.  If we look at markets from a slightly longer perspective and use S&P 500 as a yardstick, we get the following:

Jan. 2019 - Jan. 2022 : +100% in a mere 3 years!!

Jan. 2019 - today: +56% in 4 years, still a very significant rise for such a short period. 

Keep in mind that the long term average annual performance is +9.5% and, more significantly nowadays, 6% when adjusted for inflation.  By these metrics, SP500 is still far away from the average.

In other words, all that happened in 2022 was that the ridiculous froth came off - and that's it.  By historical standards equity valuations are still high (see chart below) and in no way discount a possible recession or an extended period of near zero GDP growth going forward.

There is still so much money sloshing around in the system in the US, EU, Japan and even China, that consumer demand remains strong, keeping the economy afloat and prices elevated.  But central banks everywhere are removing liquidity, even if slowly right now.  The US is on a definite QT path, the EU is going to start very soon and Japan surprised everyone last week by raising JGB rates - this only leaves China, but as the yuan is not a global currency (yet) it does not impact global liquidity patterns. 

Meaning: I project that 2023 is not going to be kind to markets.  Probably not as bad as 2022, but not a good year, either.  

We may all have visions of sugarplums dance through our heads - but reality is almost always such a b!+@#...

PS In these days of Quant Everything it is pretty rare for classic chart/technical analysis to work so well.  To Mr. Musk's woe, it worked.. big time (top Head and Shoulders pattern). Told you so... :)