“Fall down seven times, get up eight” is a Japanese saying of resilience and perseverance. It also succinctly describes the pattern of the Japanese economy over the last 35 years. The Japanese real estate and equity bubble burst in December 1989, and since then the domestic economy has fluctuated between deflation and reflation with 45% of monthly inflation readings indicating falling prices. This situation is unique to Japan, which has been one of the weakest economies among the G7 countries over this timeframe. Japan has repeatedly experienced “false dawns” over the last 35 years where its economy appeared to be escaping the cycle, only to have economic recoveries fizzle out.

What a difference a year makes! According to the Merriam-Webster dictionary, the word of the year for 2023 was “authentic,” which is certainly a major improvement over “gaslighting,” which was the 2022 word of the year. Transitioning from the negativity of “gaslighting” in 2022 to the positivity of “authentic” in 2023 was mirrored in the global economy and financial markets.

The recent trend in U.S. residential housing conditions is downright discouraging for those trying to buy a new home, and even worse for those looking to buy their first home. Ongoing supply shortages in the housing market have pushed the median price for an existing single-family home 50% higher than pre-pandemic levels. Meanwhile, the Federal Reserve has been lifting interest rates for 18 months in its effort to cool inflation, which has resulted in a 23-year high in mortgage rates. Rising house prices coupled with rising mortgage rates mean housing affordability has become very unaffordable.

Whatever happened to the old saying “don’t fight the Fed”? Typically, when the Fed and other central banks raise interest rates to cool inflation, an associated and necessary result is economic activity and corporate earnings slow, so equity markets sell off in response. But year-to-date the global benchmark All Country World Index (ACWI) has returned almost 10% and has largely ignored the fact that we are still in the midst of the most aggressive monetary tightening cycle since the 1980s. Starting in the first quarter of 2022, the central banks of the G10 largest economies have increased policy rates by a whopping 24% in aggregate. Meanwhile, central banks are also withdrawing stimulus through their quantitative tightening programs. But all the while stock markets have spent 2023 so far merrily (or recklessly?) marching higher.

We don’t think we are alone in saying that we will be happy to have 2022 in the rear-view mirror. This was a year filled with pervasive and relentless unrest, conflict, and sorrow. In 2022, Orwellian propaganda, doublespeak, and outright disinformation policies continued to spread around the globe. When the Merriam-Webster dictionary selects “gaslighting” as the word of the year – you know it was an unpleasant year.