 Hello, this is Mark Thornton at the Mises Institute, and this is the second episode of Minor Issues. Today I want to talk about the January effect, because as we end this month, stock and bond markets have made a significant recovery from the losses that they sustained last year. And there's something called the January effect, which says that if stocks and bonds go up in January, then stock markets will be up for the entire year. And there are some studies that look at the first five days of January and then look at the year-over-year returns on stock markets, or they look at the full month of January versus the year-end returns. And there's a pretty good correlation, approximately 80% of the time when stocks are up in January by either measure, stocks go up for the year. Of course, getting off to a good start in January is very helpful for that. And indeed in most years, the stock market is up. In excess of 70% of all years, the market goes up and less than 30% of all years, the stock market goes down. But people still write about and believe in and listen to the January effect where a month return can magically turn into a full year positive return. Now some analysis have found that this January effect, or barometer, only applies to small capitalization companies, such as you might find in the Russell Small Cap Index. And in this case, analysts have felt that people were simply investing their year-end bonuses in these small cap companies. People have hypothesized that it's tax advantages that result in the year-end loss and rebuying the same asset in January, pushing up the prices of those assets. So with tax advantages, say you've lost a lot of money on stock X. So you sell stock X in year one and take a tax loss on that sale. And then you buy it back 30 days or more into the future with the idea that you were expecting this stock to go up in the long run anyways. So it lost a lot of money, you sold it, you took the tax loss, and then you bought it back again. And I think that makes a lot of sense. Investors are very sensitive to the amount of taxes that they have to pay on their investments, something that's been going up over time. So that's plausible, basically. So there is some basis for the January effect. But generally speaking, this whole episode shows the pitfalls of empiricism. You know, you can't just count the numbers. You can't just marshal the facts, and you can't just make the data confess. You really have to have a theory to make sense of numbers and facts and data. So when we take this effect, assuming that the market's going to be up by the end of this month, is this the immaculate disinflation brought about by the Federal Reserve where they've raised interest rates just enough to stave off inflation, but they haven't raised them enough to punish stocks and to send the economy into a deep recession? After this theory, the recovery in assets is already taking place and will continue to rebound throughout 2023. So the major problem that we had in the economy with inflation and other things could simply be a thing of the past at this point on the theory of the immaculate disinflation by the Fed. However, and I think this is more likely, it's simply a countertrend rally. And the tax law selling and buying optimism at this point in the cycle may be driving that countertrend rally and lifting stocks and bonds as well in the economy. But let's see if that really holds up. With stocks down and bonds down, and really most asset classes are down, maybe some people will follow central banks in terms of increasing the amount of gold in their portfolio. And some people may even go with investments in Bitcoin and other cryptocurrencies because almost all the major asset categories have been down and down significantly in 2022. And I don't think the January effect is any reason to go all in on 2023.