Monday, May 17, 2021

The World Economy Is Running Low on Everything

From Bloomberg:

A year ago, as the pandemic ravaged country after country and economies shuddered, consumers were the ones panic-buying. Today, on the rebound, it’s companies furiously trying to stock up. 

Mattress producers to car manufacturers to aluminum foil makers are buying more material than they need to survive the breakneck speed at which demand for goods is recovering and assuage that primal fear of running out. The frenzy is pushing supply chains to the brink of seizing up. Shortages, transportation bottlenecks and price spikes are nearing the highest levels in recent memory, raising concern that a supercharged global economy will stoke inflation.

Copper, iron ore and steel. Corn, coffee, wheat and soybeans. Lumber, semiconductors, plastic and cardboard for packaging. The world is seemingly low on all of it. “You name it, and we have a shortage on it,” Tom Linebarger, chairman and chief executive of engine and generator manufacturer Cummins Inc., said on a call this month. Clients are “trying to get everything they can because they see high demand,” Jennifer Rumsey, the Columbus, Indiana-based company’s president, said. “They think it’s going to extend into next year.”

The difference between the big crunch of 2021 and past supply disruptions is the sheer magnitude of it, and the fact that there is — as far as anyone can tell — no clear end in sight.

Who could have possibly anticipated this?

In the EPJ Daily Alert in March of last year I wrote:

 My view continues to be that once the panic is over, there will be a manufacturing boom both here in the US and China as businesses chuck "just in time" inventory operations and resort to "stock up enough inventory to keep me operational through next flu season."

This will be a bonanza for  container ship operators whose stocks have been absolutely destroyed by the COVID-19 panic.

On June 3, 2020, I wrote:

 We haven't even seen the price inflation that I expect yet so the earliest we could see price controls is sometime in 2021...

The price inflation rate will very likely hit 5% annualized, but it could very well be much higher, maybe 10% plus. 

This gives us plenty of time to prepare. 

 On October 19, 2020, I wrote:

 The material shortage is an indication of likely strong price pressures developing for the materials. The climb in materials prices will not be small...Price inflation is currently under 2.0%. It will start to climb in a month or two but it will take months before it is considered a serious problem.


1 comment:

  1. A friend works in a meat processing plant (pork bellies) in South Central Ohio. They have gone to two vice three shifts because they cannot get enough pork bellies. I hope everyone has arranged to eat as much as they have obtained silver and gold. They are tuff to chew.