Global Macro Monitor

Shipping rates are a real-time indicator of excess demand and are down yuuge, now 93 percent lower than the September 2021 peak.  We have always maintained that the inflation the economy is/has experienced has primarily been driven by excess demand and not supply shocks. 

Durable Goods

Inflation in the goods sector was initially caused by a demand shock, coupled with a supply shock. Consumers, stuck at home during the Covid lockdown,  shifted their spending away from services, such as restaurants, to durable goods, such as computers, used cars, and bicycles during a time when supply was shuttered (D2 and S2).  The massive stimulus packages boosted demand further, leading to higher demand (D3), higher prices (P3), and output (Q3).    

Traffic Jams At The Ports

We are amused that many claim the traffic jams at the major ports over the past few years are supply shocks, which is complete nonsense.  The bottleneck at the ports was fundamentally driven by too much demand caused by too much stimulus highlighted by excessive monetary injections, which short-circuited and swamped the logistics of moving goods.  

We concede upstream suppliers did suffer “supply shocks” as many of their inputs or intermediate goods sat offshore waiting to dock and unload.   If, however,  a supply shock is caused by excess demand downstream or at point of sale demand, is it really a supply shock?   

On January 9, 2022, 109 container ships sat off the coast of California waiting for their turn to unload at the ports of Los Angeles and Long Beach. One year later there are almost none. The easing of port traffic and the opening of other supply-chain bottlenecks have led to a collapse in freight rates from the all-time highs reached during the pandemic. The cost of shipping a 40-foot container from China to America’s west coast is now $1,400, down 93% from its peak of $20,600 in September 2021, according to Freightos, an online freight marketplace.  – Economist

NY Fed model

The New York Federal Reserve bank has analyzed how much of the inflation was/is caused by supply constraints, 

The current debate on whether the Federal Reserve can engineer a soft landing needs to disentangle the drivers of U.S. inflation. Our work shows that inflation in the U.S. would have been 6 percent instead of 9 percent at the end of 2021 without supply bottlenecks. Our quantitative results clarify why some pundits were wrong to predict a transitory surge in inflation, while others were right in predicting high inflation, but for the wrong reasons. Put differently, fiscal stimulus and other aggregate demand factors would not have driven inflation this high without the pandemic-related supply constraints. In the absence of any new energy or other shock, it is therefore possible that the ongoing easing of supply bottlenecks will cause a substantial drop in inflation in the near term. – NY Fed

They may be right, we may be crazy.  Stay tuned. 

QOTD = Quote of the Day

h/t: Donna Brazilie 

After Chinese tech giants, Alibaba Group Holding Ltd. and Tencent Holdings Ltd., experienced their first-ever quarterly revenue drops and cut jobs by the thousands in 2022, hear this:

Xi Jinping has tamed the wild horses of the private sector… But the problem is that he did such big damage with his policy that the confidence of some entrepreneurs and foreign investors is already destroyed. – Ming Xia, City University of New York.

Merry Christmas and Happy Holidays, folks.

Thanks for tuning in to GMM, and stay tuned as we plan to ramp up the content big-time to make 2023 our best year ever.

The following Holiday ad is awesome and never gets old.  The little boy looks a lot like Tom Brady, no?

QOTD = Quote of the Day

This aged well.  We are empathetic with the pain out there but, just as in the case with the anti-Vaxers and COVID deniers, stupidity has consequences.  

Tesla (TSLA), the poster child of the latest leg of the bull market, which began in March 2020, is again testing what has been its unpenetrable support at the 200-day moving average. The stock has to hold here. Maybe, maybe not.

Tesla stock is now in a bear market, down 31 percent from its January 4th high. 

Crypto Crash

Moreover, Elon’s crypto hobby isn’t faring much better. 

Bitcoin is down 47 percent from its wait for it… 9/11 high, and down 13 percent from the Crypto Super Bowl just eight days ago.  Where art thou Tom Brady and Matt Damon? – GMM,  February 21, 2022

The pain is palpable with many of my millennial bros. 

The markets have once again become a social movement and everyone is now a genius.

I was lectured the other day by a friend, who said  I knew nothing because I didn’t understand that millennials are taking their stimulus checks and buying Bitcoin.  I tried to explain that was my point,  then asked if he knew what a price-earnings ratio was or what is the stock market capitalization to GDP.

He dismissed me and said something to the effect,  “Nope, doesn’t matter, you’re an idiot.”  Credibility is all about timing, baby, but timing is impossible…

I then tried to explain to him that markets don’t reflect a true fundamental reality because the government, via the Fed, has basically nationalized most of them through endless bailouts creating an alternative reality.  I conveyed that my investment philosophy is to buy low and sell high.

We then had a debate over Tesla, the stock that is minting money for him.  So he says.

He couldn’t distinguish between Tesla the car (we agreed the best in the world),  and Tesla the stock.  –  GMM,  January 11, 2021