As 2022 winds down, we look back on a watershed year: in many areas of life, we have perhaps come to turning points:

• The low inflation environment turned towards the highest inflation since 1990 in Australia (over 7%) and since 1982 in the US (8 or 9% depending on the measure).
• Intense government stimulus to counter the effects of the pandemic reversed and governments and central banks around the world removed their support, allowing interest rates to rise.
• World politics were dominated by the blatant aggression of Russia against the Ukraine and the accelerated push by China to expand its influence.
• Global trade had expanded since 1950, had plateaued since the GFC and then considerably reduced with Co-vid lockdowns and trade ‘wars’, connected especially with Russia and China.
• Climate change has been more broadly accepted and acted upon. The realization that more intense and frequent natural disasters are related to climate change have demanded action.

Good news on the inflation front is that in both the US and Australia, the annual rates released in the last 2 weeks have reduced from the previous highs. This gives bond managers hope that bonds can now take their normal role in portfolios as defensive assets (their prices have been falling with inflation and share prices for the first time since 1994).

Other good news is that countries are working to establish alternative supply chains and trading relationships. Out of adversity, new and stronger bonds are being forged. Innovation in technology and energy sourcing continues to accelerate. As in the past, out of turmoil, a brighter future is forged.

Wishing you health and happiness and hoping for a more peaceful 2023.

Tom and Kerrie

at Financial Springs