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This is an incredibly thoughtful article as usual. I agree with all of the thoughts and wish I had the ability to articulate them as comprehensively as you did. I would add a couple of points: you relatively briefly mention government deficits particularly in the context of Europe.). Deficit levels - in the US as well as elsewhere, and in the US at state and local as well as federal levels - are unsustainably high. This will become even more apparent as higher interest rates increase financing costs, leading to further deficits. There is no apparent willingness of politicians to address this deterioration. Ultimately, unsustainable imbalances are not sustainable. The only question is when and in what form is the market’s recognition and reaction to this.

Another point I’d make is that the 2021 recovery wasn’t as great a success story as many believe. As you note we avoided the worst of the covid-related effects, but it was through the application of unprecedented monetary and fiscal stimulus whose impacts will be negative and long lasting. As one example, multiple income support programs have contributed to persisting low labor market participation rates that are currently hindering inflation-reduction efforts. These and other structural adjustments to the labor market - like work from home preferences - will play out over a long term.

Finally, no review of 2021 or 2022 would be complete - even if looking only at financial markets - without a mention of China vs the West developments. This will continue to be the defining geopolitical challenge of our time, and will play out across all disciplines including finance, and certainly developed during this period.

Thanks again for the post; it will be interesting to re-read at the end of 2023!

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