The -50% Port Strike, Inflation, & Recession.

W wah we W the coming Port strike which

may come as soon as October 1st could

create economic hell just days before

the 2024 election and the critical for

GDP holiday shopping season in this

video we're going to go through What's

Happening Here can the government stop

this problem and these issues have they

done it before what is Biden actually

going to want to do given Union support

for Democrats and quite frankly can the

government even do anything here then

after we get through all of that sort of

background we'll get into what the

impacts of this Port strike might be on

inflation stocks and of course the Fed

so with that said let's get started hey

everyone meet Kevin here it is time to

talk about the Port strike many of you

have been asking exactly about this and

what do we got well we got the long

shoreman's Association negotiating for

45,000 Dock Workers at three dozen

that's about 36 different ports all the

way up and down the east coast and

around the gulf into Mexico or the Gulf

of Mexico into Texas so think Maine to

Texas this is a huge number of Dock

Workers keep in mind we don't actually

have that many Dock Workers maybe

somewhere around 60 60 plus thousand in

that range so you get the vast majority

of doc workers on the East Coast into

the Gulf considering participating in

this strike keep in mind if they do go

on strike pay usually stops when the

strikes begin sometimes workers end up

getting striking benefits but when

worker pay stops you do have not just

the impact of what they're working on

messing up an economy but the velocity

of money of their spending messing up

local economies so think about this if

you have tens of thousands of people in

local economies no longer spending or

limiting their spending at local

restaurants those restaurants get hit

harder local discretionarily

these ports that are affected by this

potential strike affect about 50% of us

Seaborn Imports basically half of all

the stuff that gets shipped over to

America and from America and quite

frankly there are estimates that are

slightly wide ranging in terms of how

much of an impact this could have JP

Morgan thinks the impact could be

somewhere around5 billion per day other

more left-leaning

sources uh not suggesting that JP

Morgan's taking a iCal stance here but a

lot of sources that lean right are

quoting JP Morgan a lot of sources that

lean left quote other research

suggesting the impact would only be a

billion dollars per day but let's go

with the5 billion figure just for a

moment 50 days at $5 billion would

remove about 1% from our GDP so GDP that

technically for the Atlanta fed is now

growing at 3.1% could potentially fall

down to

2.1% in just 50 days and and of course

if you double that then you're down

another percent but you're also going

into a really critical holiday shopping

season so the impact could be even

larger retailers think this is going to

be a pretty big hit to the US economy

because they're the ones that build up

inventories from shippers now the good

news is and I've kind of seen this in

August mostly because these discussions

and negotiations have been going on

since June and July a lot of retailers

started building up inventory to sort of

prevent or a large impact from a

potential strike so it kind of seems

like a lot of larger consumer companies

have already built up anticipation for

this and so we should be able to have

some sort of I like to say stretchy

rubber bandness uh in inventories that

would actually prevent shortages for

quite frankly any kind of product that

gets shipped those could be cars being

you know shipped by companies like Tesla

computers Electronics apparel Building

Material you name it I mean pretty much

anything that goes in a container is

affected here now of course there are

expectations that individual consumers

are going to have to pay higher prices I

do dispute that suggestion though we'll

get to the impact in pricing in just a

moment now first let's just keep talking

impact here this is going to be

potentially the first walk out

uh by these particular union members in

about 50 years it's not the first strike

we've seen at ports like we've had the

Port of Long Beach and LA strike in 2001

for example we'll talk about that as

well but this is expected to really

distrupt the economy for weeks just

before the election not just in those

local markets but also as companies go

through those builtup inventories the

longer this goes on the more damage it

just causes uh you're going to hit hubs

like New York Baltimore uh Norfolk

Savannah Houston uh a lot of potential

problems given that this is right before

an election as well the reason Workers

are striking which is interesting has to

do with their fear of getting frankly

screwed by Automation and they're

looking for higher pay raises this is

coming at a time when margins and

shipping have already really gotten hit

hard thanks to not only an economy

that's been slowing down but also those

houy strikes in the Red Sea that have

made it substantially more dangerous to

ship in parts of the world and a lot

more expensive as a result now some of

these automation issues kind of go back

into history and and there's kind of a

neat example Beyond sort of the Lites of

the Industrial Revolution but think

about the

1950s and think about the container for

a moment usually when we think about

container shipping we just think oh yeah

I mean container shipping has been

around forever I mean we've all seen

pictures like this before ships full of

containers well it didn't used to be

that way back in the 1940s and 50s and

before you actually didn't have

containers so shipping was really

expensive and quite frankly deadly

because people would unload one box and

then barrels of stuff would roll over

them it it was it was pretty dangerous

you had various different loads that you

were trying to Tetris in different

shapes different pallet sizes you name

it it used to back in the 1950s cost $6

per ton to unload a ship and as soon as

the container was invented that price

fell to 90 or fell by 96.8% down to just

16 cents which is crazy massive decline

thanks to the innovation of just the

container and I'm thinking to myself wow

the container was Innovative like I I

just didn't even consider that the

container was Innovative but it was

massively Innovative uh and so a lot of

Doc workers then were freaking out they

were threatening to sink ships because

of containers taking away jobs dock

worker jobs now interestingly doc worker

jobs actually grew after the

introduction of the container because it

became a lot more profitable to actually

ship stuff so you ended up getting maybe

an initial layoff period which is

usually what happens with a new

innovation you get sort of an initial

layoff period but then you end up

creating so much productivity you end up

growing the industry and so then we

actually ended up growing doc workers

from around 41,000 doc workers then to

around 64,000 now so like in the long

term automation can be a good thing in

the short term of course union workers

freak out because they're like I I might

get fired and that is true especially

since doc workers some of them when you

include overtime they can make over

$200,000 a year and they are doing

really hard work and dangerous work and

critical work to the economy so there's

a balance here now there are these ideas

that you could get the Biden

Administration to come in and prevent

this worker strike maybe the Biden

Administration could prevent the worker

strike or end the worker strike by using

the Taft heartley act now the Taft

heartley act this is important to know

was passed in

1947 and it created some restrictions

for labor unions it also forced unions

to promise that they were not Communists

keep in mind that was done during the

McCarthy era that's the same time is

sort of the Red Scare anti-japanese

Chinese Communist fears blah blah blah

uh also pass the right to work uh

Banning mandatory union membership there

were a lot of things that were part of

this but the most important and and

critical part of this act that applies

today is the fact that you could use the

ACT to prevent a strike you could

basically sign a piece of paper in

executive order and instantaneously

force union workers back to work as the

president now this has been done before

last time it happened was George W bush

in 2001 he ended an 11-day shutdown of

29 West Coast ports and declared that

ending or ending of that strike vital to

our economy and Military especially

during an uncertain time which is

interesting because we walked into the

2001 recession that year so probably

rightfully so to try to keep the economy

from suffering even more more damage and

it's also interesting how history sort

of Rhymes because right now A lot of

people are really worried about a

recession and here we go with a Port

strike again which could be the Black

Swan that does drive us into recession

again which would be unfortunate and

Biden could sign a piece of paper and

stop it Richard Nixon stopped it in 1971

31 years uh 30 years-ish before George

Bush but keep in mind this is rarely

used it's been 23 years and it was 31

years before that and both of those

presidents were

Republicans Biden on the other hand he's

a Democrat and this is not to get

political it's just to say that Joe

Biden is much more pro-union given the

pro-union voter pushing for Harris and

Biden at least at a larger margin than

pushing for

Trump now what is that potentially mean

what potentially means that the Biden

Administration is not going to end this

Port strike which is not ideal because

it means the Port strike could just go

on in perpetuity right into the election

and through a really critical holiday

shopping season obviously unless the

long shoran Association and the maritime

associations they basically well the US

Maritime Alliance it's called they

basically get together and work this out

but right now they have no plans to talk

before tonight when contracts expire

which means the strike could start as

soon as

tomorrow so where does this leave us

with impacts and again just to be

crystal clear here so far the Biden

Administration says they have no plans

to intervene now they could flip-flop on

that especially if things get bad but

this is a big deal and so now what we

have to do is consider the economic

impacts here the first thing that might

happen is we might see Air Cargo rates

Spike Air Cargo rates mind you are

already up like 20 to 200% from last

year that's like a triple mind you at

some ends of Air Cargo uh part of this

is due to the houthi Red Sea attacks

because shipping by sea has become

extremely uh expensive and dangerous Red

Sea disruptions uh have also LED

container prices to spike in 2023 we

were sitting at like $1900 a container

to ship it

that's like pretty much at the average

break even for the industry well those

spiked after the houthi attacks to about

4,000 to $5,800 per container and right

now we're down to about 4,000 but this

Port strike could potentially lead

container prices to spike again because

containers just won't be getting

unloaded so it'll be more expensive to

get your container unloaded at a port

that's actually open because you have to

reroute it and then you have to ship it

from there because of that people think

that Union Pacific Rail shipping to move

product between different ports like

okay we were supposed to go to Jersey

well let's ship it to California it'll

take longer to ship it over there and

then let's Air Freight it over where it

needs to go or ship it by rail as a

result people think that Air Freight is

going to go up and rail Freight is going

to go up and those companies might do

well companies like Cafe uh EVA Air

Korean Air Union Pacific these are all

companies that people think will do well

as a result of this Port strike but

there's more of a problem than just

companies making profit if you want to

look for other airlines you could just

look on their 10ks to see what their

exposure is to Cargo shipping as well in

case you're looking for potentially an

air freight investment but it's really

worth noting what

a Port strike could do for inflation so

a lot of folks think that the Port

strike is going to lead to a second wave

of inflation it is possible that the

bond market starts trying to price in a

second wave of inflation because of this

Port strike but I actually don't think

you're going to see consumer prices rise

on the Port strike I think if yields go

up the Federal Reserve is going to be

forced to talk them down because

otherwise they risk overdoing the

tightening of the economy and instead

higher shipping costs will be passed on

from shipping companies to actual

companies like consumer product goods

grocery companies apparel companies

Automotive companies and so somebody's

going to pay the bill but I don't think

it's going to be the consumer so it's

not going to be the freight companies

the freight companies are going to

charge more it's not going to be the

consumer because they're tapped they

can't pay anymore so it's going to be

the companies in the middle that have to

unfortunately take it in the margin so

apparel companies electronic companies

computer companies Building Material

companies vehicle companies you name it

Home Depot lows whatever Walmarts Costco

these are the companies are probably

going to see higher costs without an

ability to pass those on so we could see

PPI prices go up producer price index

prices uh we could see those rise I

don't actually think we'll see consumer

prices move of course the question of

all this comes down to how long does the

strike go on because companies started

building up inventory in anticipation of

this it's possible that a two or 3 week

shutdown doesn't actually do anything to

the economy we just keep humming along a

prolonged strike through the election

which is possible because often times

negotiators try to figure out like well

who's going to be the next president a

prolonged strike could end up hitting

GDP pretty hard especially as you go

into the holiday season which is not

good and again the companies that are

going to get screwed are going to be

your retailers people actually selling

to the consumers department stores or

some of the others that I've listed

especially the automotive industry

automotive industry is already kind of

getting screwed I hate to say it but

look at stellantis this morning

stellantis stock is down like 133% this

morning uh and that's because they they

were guiding a double digit margin now

they're guiding just 5 and a half to 7%

for 2024 citing quote challenges in the

broader market and in China

deteriorating Global industry Dynamics

uh as stantis makes Brands like Chrysler

Dodge Jeep Maserati and others and just

frankly lower sales expected across most

of the industry so this is is not really

ideal this is quite frankly problematic

I don't know that it's enough to be the

Black Swan that a lot of folks are kind

of looking for because quite frankly at

this point it's just a swan like we're

aware of it but the Black Swan aspect of

it would be how long does this last

that's the question and given the Biden

administration's likely unwillingness to

get involved in this strike in ending

the strike given that that would be seen

as

anti-un not good remember how I

mentioned California offers uh striking

workers pay it's because Democrats

generally enjoy supporting unions it's

usually a sort of an easy base to get

votes from it's all as usual very

political so uh bottom line out of all

of this do I think this will lead to a

second wave of inflation for Consumer

prices no will this lead to pain in

margins for companies yes could it lead

to volatility in markets yes will two to

three weeks of strikes if they even

begin tomorrow actually cause any

problems probably not will strikes

through the election cause problems yeah

likely anyway that's my take thanks so

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