The Inside Story Of The Ship That Broke Global Trade


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COVID Deaths v. State Vax Rates

#CKStrong  Never forgetting Carol K. We are with you, girl!

Anyone see a pattern here?   

If you stare at the chart long enough, you can see the pink red elephant [in the room].

Sadly this chart is largely a function of the state’s politics.  Doesn’t have to be that way and people shouldn’t have to die for it. 

America’s Death Cult And The Pro Life States

Never thought a large swath of America or a major political party would morph into a Jonestown death cult but it has. The data speaks for itself.

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The Global Supply Chain & Path Of Inflation

#CKStrong  Go CK!

The following was originally posted at


As summer fades, the global economy is downshifting from months of super-charged growth, pumped up by unprecedented fiscal and monetary policy measures.  Growth will continue throughout the year but at a sharply decelerating rate, and inflation will remain stubbornly high.

Supply chain issues — components, commodities, and labor shortages — are now the primary constraint on growth. We do expect demand to continue to soften over the next few months, however.

Even though global electronics production continues to rise, the rate of expansion has slowed significantly in the past few months.

We have constructed a narrative of the global economy, which we believe is unique and reflects the economic reality driving electronics manufacturing.  As we have stated in the past, current market conditions are driven mainly by the macro.

We believe it is essential that purchasing managers think “big” – i.e., the global macroeconomy – to understand their market conditions better.

If we could point to one piece of data or chart explaining current conditions and the economic trajectory over the next six months, it is Chart 8, U.S. Retail Sales Are 12.7% & 52-Months Ahead Of Pre-COVID Trend.

What’s The Matter With The Global Supply Chain

The bulk of the problems in the global supply chain are caused by excess demand.  Policymakers have injected too much stimulus into the global economy.  By combining income support through transfer payments, the central banks have effectively monetized much of the large deficits and spending run-up.

Our view is derived from Chart 8, where we use U.S. retail sales as a proxy for global aggregate demand.  The EU’s retail sales chart looks very similar.

Chart 8 illustrates that spending unexpectedly came roaring back after an unprecedented drop when global economies were turned off in March 2020 and had a massive “Bullwhip Effect” on the global supply chain.

See below for the informative interview with TJ Rodgers, former Cypress Semi C.E.O.. on fixing the supply chain.

The spike in demand was, in large part, fueled by the governments’ income support policies and over $9 trillion of digital money created from thin air and injected into the advanced economies by central banks.

July’s retail sales – our proxy for global aggregate demand, which is not observable, by the way – are 12.7 percent above and running 52 months ahead of its pre-COVID trend.  Retail sales are inflated by the policy measures and will need time (52-months of zero growth) and/or space (-11.2% down from current levels) to get back to trend.   No doubt, it will be a combination of both time and space.  A sharp, abrupt  correction in retail sales could be painful and confuse the supply chain even further.

We believe only when demand returns to trend will the global supply chains begin to heal.  Some will sooner than others, but it will take longer than most expect unless the global economy hits the skids big time or the central bankers panic.

In no way are we taking shots at policymakers.  They had just as tough of a job like all of us trying to figure out what was going on after the pandemic began its rapid global spread.  Moreover, the problem of too much demand and inflation is a better problem to have, much better, at least to us, than riding out a deep recession.

However, we do question the need to continue such policies, especially further monetary injections, and suspect policymakers fear a significant and hard sell-off in overvalued asset markets.  If asset markets do correct hard, it won’t be long before we’re discussing deflation as the advanced economies have become very asset-dependent.

Transfer Payments Fading

Transfer payments, which make up the bulk of the income support policies, are starting to fade.  The U.S. government emergency unemployment payments ended this past week, which will slow consumer spending on the margin.

Stagflation Cometh

Nevertheless, Christine Lagarde, president of the European Central Bank, who has started baby steps in pulling back Europe’s stimulus, recently stated,

“The lady isn’t tapering…”

It doesn’t appear governments have the stomach to take the economic pain of clamping down on demand, and our takeaway from the soft rhetoric from the central banks is “stagflation” cometh.  That is, inflation will be around longer – not transitory – than conventional wisdom suspects as economic growth slows sharply.

Expanding Long-Term Capacity

Of course, the supply side can adjust, increasing production capacity to meet the current excess demand to bring imbalances into equilibrium.  It would also reset the potential output trajectory for higher growth.

A significant expansion of long-term production capacity is not likely,  as many producers, rightly so, are skeptical that demand, where retail sales are still two standard deviations above their three-year moving average, is sustainable (Chart 9).  We suspect most producers will try to meet demand by working their factories and employees overtime rather than increasing their long-term capacity to produce through new factories, machines and hiring new employees.

We do believe the pandemic has ushered in a structural shift in semiconductor demand as the pandemic had accelerated the digitization of the global economy.   (see Charts 5-6).

Demand In The U.S.A.

We suspect much of the excess demand is coming from the U.S.. Chart 10 illustrates most of the world’s ports seeing high congestion rates, are located stateside.

We don’t dismiss that real supply shocks, such as factory shutdowns due to new COVID outbreaks, are hitting the supply chain, but they are not the main driver.

Much of the supply chains problems are also in transportation, where ocean freight takes care of 95 percent of global trade.   Check out Chart 11, which shows almost 50- ships are floating around the L.A. and Long Beach ports waiting to offload their cargo.

Last month we worried out loud how the low vaccination rates in Southeast Asia could impact the supply chain (Chart 12).   The latest from Toyota,

Toyota Motor Corp. trimmed its production outlook for this year by about 3% because the spread of the coronavirus in Southeast Asia has disrupted access to semiconductors and other key parts. – Bloomberg

Based on our analysis, our best guess is that stagflation is not transitory and will be with us longer than anticipated, and the supply chain will not start to improve until U.S. retail sales move back to trend.

Sales are slowing. Since March, the charts illustrate sales growth has stalled, albeit at a very high level and well above trend.

Chart 8

CTJ Rodgers Interview,  “How To Fix The Supply Chain”

Click here to view video

Major Central Bank Balance Sheets

Chart 9

Chart 4

Chart 5

Chart 6

Chart 10

Chart 11

Chart 12

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COTD: U.S. Budget Deficit

COTD = Chart of the Day


Go Carol K!  The doctors are stunned at her fight and grit.  So are we.  We want some. 

Looks like the U.S. budget deficit is going to come in around 12 percent of GDP for Fiscal 2021, which puts it in WWII territory.   The only possible way Inflation will be “transitory” (the Ice Age was transitory, by the way) is the deficit is slashed in half over the next few years but that will be painful. 

Will the Fed stop enabling the Treasury with its bond purchases? 

No doubt policymakers did the right thing throwing everything and the kitchen sink at the COVID collapse, which helped avert another depression but the exit is always the problem and will be very painful when/if normalized. 

The FOMC members talk a good game about having all the tools to reign in inflation but do they have the stomach?  Doubtful.      

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COVID: The Red, Right, And Blue


Warning:  Politics may be is hazardous to your health. 

All but two of the states above the national rate of daily hospitalizations per 100k (30) are in the red, and Hawaii is kind of a special case and only one point above the national rate. Georgia really singing the Blues?  Seriously?

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Inflation Watch: Totaled Car Prices Spiking


During my EM trading days, I realized that all the juice had been squeezed from the more advanced emerging market bonds, such as Mexico, Brazil, Argentina, and Poland. So I started buying up the “exotic penny stocks,” such as Sudan distressed debt, which had been in default for years and trading with a $0.02-$0.04 bid/offer spread. Note the offer price is a 100% mark-up on the cash bid price. Today’s liquid coupon bonds trade with a bid/off differential of at most $0.125, and that’s considered expensive.

We lined up a ton of buyers, mainly hedgies, who really understood the MoMo markets,, at $.04, the offer price.  I bought CHF500 million (could have been US$ as my memory is fading).  The Swiss Bank trader laughed at me when we did the trade. 

Ironically, it was a Swiss based hedge fund that took almost all the floatable Sudan debt at the top, at about $.15, before the market collapsed.  I saw that trader in a NYC restaurant about six months later and asked why he was buying at $.15?

“Because we thought it was going to $.30.”     

I asked him why. He couldn’t answer.

Useful Delusions

I had learned if you could get the price moving higher, a momentum market with no intrinsic value will always find a way to delude itself, retrofitting fundamental reasons to justify the rising price. Soon after I made the initial purchase of Sudan debt and the price began to ramp, there was a rumor in the market that my firm, and I personally had a United Nations mandate to buyback Sudan’s debt.

We never confirmed or denied the rumor but knew exactly what was going on.

Distressed Junk Cars

Take a look at the price of totaled cars. I just sold one for $1500. Could. Not. Believe. It.

Isn’t the supply of wrecked cars about to spike with all the cars lost to Hurricane Ida?

Though quite a bit different market, some things never change,

Even turkeys can fly in [or after] a hurricane.

Sound or look familiar? 

See article here.

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Don’t Let The Robin Hood Gang See This Chart


Robinhood, the online brokerage used by many retail traders to pile in to heavily shorted stocks like GameStop Corp, has made an ambitious push into loaning out its clients’ shares to short sellers as it expands its business. – Reuters

Doesn’t the Robin Hood crowd scan the markets looking for short positions? The following chart illustrates how short auto dealers are of inventory, or how sales are depleting the current stock of new cars.

Ship in ten Mercedes, please!

Yes, the auto sector is suffering a real supply shock based on the chip shortage and is not the best example of excess demand. However, the auto supply chain and semiconductor market are.

As the world shut down because of the COVID-19 pandemic, many factories closed with it, making the supplies needed for chip manufacturing unavailable for months. Increased demand for consumer electronics caused shifts that rippled up the supply chain. Orders began to pile up as manufacturers struggled to create enough chips to meet the new levels of demand. A backlog began to grow and grow and grow. – Popular Science

Really, folks, the market for goods and services is starting to be infected by the same type of expectations that have been in the securities markets for years. Go check and see what is happening in the global supply chains if you don’t believe us.

Does the Fed have the stomach to smackdown demand to balance the economy? Do they even have their assessment of the economy right or is it too steeped in academic models? Do they realize that the global stimulus has been so excessive that it actually doing the opposite of what is intended in some sectors — i.e., shutting down production and laying off workers?

The global shortage of computer chips continues to hammer automakers, forcing factory shutdowns and sapping sales and profits, with mixed views on when relief might arrive.

Seventeen auto factories in North America and Europe have halted or reduced production in recent weeks over the scarcity of the tiny components, according to Seraph Consulting, which is advising automakers on the shortages. The shutdowns have affected plants in Michigan, Kentucky, Kansas, Mexico, Canada and Germany. – WashPost

Jay Powell is not an economist and leans heavily on the Fed staff.

If they do tighten monetary policy and the asset markets sell off hard, we will soon be talking about deflation and the cycle repeats. Stagflation, cometh, or are we there yet?

Stay tuned.

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The Future Of GMM

I am sure you noticed we have been a little distracted with health issues over the past year.  Some readers recently asked if GMM has “turned into s shrine for CK.”  Well, yes, for now. 

CK is a considerable part of the team here, and we love her just a much as our readers do.  She has written some excellent posts that have made them a lot of money.  

She has never worked in the securities industry as an analyst but should have.  I ran enough research shops on the Street, hired several analysts and economists, and would have hired her in a heartbeat.  She is brilliant, has an incredible work ethic, and has developed a very rigorous algorithm to break down companies.

I have also run several trading desks and hired many traders, and CK, though a longer-term investor, has great trading instincts.  I bailed on this market at around 3200 S&P and still think I will be able to buy back in much lower, but she hung tough, saying, “I am going to ride this gravy trade as long as it lasts.”

When I had to fire or cut a trader’s position when they were incapable of doing so, I would explain to them the “Soundgarden mindset does not work on this desk.”

Cause I know I’m headed for the bottom
I know I’m headed for the bottom
I know I’m headed for the bottom
But I’m riding you all the way
Yeah, I’m riding you all the way
I’m riding, yeah

I saw how Carol made a ton of money in the Ark Funds and then realized that she had made a mistake through the price action and additional research.  She immediately cut her positions.  I have seen her do this on other losing positions.  Good instincts.  I want her on my side.

Future Of GMM

We will be back.   Carol is fighting a long shot, uphill battle recovering from a stem cell transplant but will play a huge and considerable role when she recovers.

As for me, I am still struggling with a few setbacks from a major surgery earlier this year but am almost back to full health.  I will be back with some cracking global macro research and more trading and investment themes when the markets come to their senses unless we are in hyperinflation, which is the only conceivable way to rationalize current valuations and the circus that markets have morphed into.

We have always believed the “Fed put” will end with some nasty inflation and wondered if the FOMC, though they claim they have the tools to control inflation, has the stomach to do what it takes.  I seriously doubt it. 

They couldn’t even handle a 20 percent correction in December 2018 and caved to the whining of President Trump and Jim Cramer. 

“By June 2019, unemployment reached 3.6% but Powell let President Donald Trump bully him into stopping the tightening process. Now economists at the Biden White House have a preference for accommodative policies, and Powell is up for reappointment.” – MarketWatch

I just received this text from a Brazilian friend who owns a restaurant in Northern California:

“Hey G,  Texting to let you know I have a lot of déjà vu.  A couple of days ago, I went to the restaurant supply store, and a package of bacon I used to pay $20 for was $100.  I walked up and down the store and saw empty shelves. I don’t know, it feels like Brazil in 1988.

It’s going to get interesting.  Stay tuned, folks. 

I’ll be back!

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Dawgs Get It Done For CK


Not the best offensive performance but a W. against the nation’s #3 ranked team. The win over Clemson should catapult Georgia into the #2 ranked college football team in the nation behind…wait for it…Alabama.

Now we need the antibiotics and miracles of modern medicine pull off a similar upset to catapult CK back to health.

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Go Dawgs! Let’s Win One For CK


Carol (CK) growing up in W. VA., just stung by a bee before this picture was taken. Standing on the slab and staying off the grass she believed would keep her safe. Damn good logic for a 4-year old, no?

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