The Supply Chain BUBBLE | Inflation Crisis.

so let's talk Supply chains when our

supply chains actually going to lead to

any form of meaningful disinflation or

is it possible that we're just going to

continue to see inflation which is the

last thing that we want we want to see

supply chain disinflation we want to see

that Supply chains are loosening and

becoming easier so that way we could

finally see pricing pressures go away so

what's actually happening statistically

let's look at the charts are we are

basically things getting worse or Supply

chains telling us that it's time to

buckle down for a double dip crash

because we're getting a Resurgence of

inflation well let's see what Supply

chains have for us by reporting over to

UBS which has a fantastic piece it's

about nine pages long out uh just uh

within the last few days here and it is

Global Financial economic perspectives

on supply chain bottom next all right

let's take a look at some of the most

Salient points here first supply chain

bottleneck stress is now close to the

lowest level it has been in 10 years our

national Global Supply Chain stress

indicator has fallen negative 0.66

standard deviations below medium with

the exception of one month in 2019

that's the lowest level of overall

supply chain disruption that we have

seen since 2013 which interestingly 2013

oh wow that actually is really

interesting so 2013 oh man I didn't even

make that connection until I just I just

read that again

2013 was a really interesting year

because see we came off the real estate

market dropping from 2005 to about the

end of 2011.

the real estate market started its

recovery in around November of 2011 and

continued for about a year through 2012.

it wasn't until interest rates fell and

all of a sudden we got this massive lack

of inventory at the end of 2012.

basically 2012 was like a year of

absorbing excess inventory we went from

for example in my city 400 homes on the

market to like uh 80 homes on the market

which is weird because that's about how

many properties we have on the market

right now but anyway once we got to

about 80 homes on the market and that

Supply wasn't actually coming on the

market anymore all of a sudden prices

jumped about 20 percent in two months

and what's really interesting is Robert

Schiller who's created the case Shiller

index over at Princeton He suggests that

the vast majority of household wealth

effects do not come from stocks you

don't according to his research you

don't spend more because you have more

money in stocks you spend more money

when you feel richer because of real

estate now that's actually really

interesting because if the real estate

market did indeed have that sort of

Bounce in 2013 which we could look back

and see that statistically it did is it

possible then

we actually had supply chain disruptions

due to a peak in consumption in 2013.

and that's why now we're looking at the

lowest level of supply chain disruption

since 2013 which was basically

potentially where we saw an inflection

point in other words going from like

crap it's 2012 nobody's buying anything

to in 2013 oh everyone's Rich again and

it's like that marked the bottom and

then you saw that that sort of surge in

spending again that's really interesting

because I have the belief that the

Federal Reserve and this is just my

opinion that the Federal Reserve is

basically saying hey we need to crush

housing to get people to stop spending

just so you can see that graphically and

then I want to keep going just to make

sure I'm explaining this as clearly as

possible if Supply chains are becoming

looser looser and looser and then they

inflect here in let's let's just say may

of 2013 okay pick like a middle month or

June or whatever right that means

basically all of a sudden people started

spending again that's what I'm aligning

with potentially that real estate market

uh because that's sort of Mark to bottom

now now we might be in a position where

you know Supply chains got really tight

during covid but now they fall in again

to the lowest levels that we saw since

then that's not saying we're necessarily

at another inflection point it's just

saying we've now hit low levels that we

haven't seen in a very long period of

time of supply chain stress uh that's

that's very good it's a very good thing

so anyway if supply chain stress was a

source of inflationary pressure could an

overshoot in the other direction

uh as they're saying here press

disinflationary pressure and this is

where what they're saying is look we're

seeing costs of almost everything in

Supply chains whether it's Freight or

container ships or inventory ratios all

potentially rotate not just to the level

of normalcy but potentially overshooting

to the level of disinflation now this is

wild because a lot of the mainstream

narrative today the bear narrative today

is oh no inflation is going to last

longer than we expect and that may be

true it may take some time for this

supply chain disinflation to actually

work its way through the economy and for

us to see rapid disinflation but think

about what's already disinflating you're

already seeing a massive inflection in

the availability of workers which is a

massive cause for wage inflation you're

already seeing rents plummeting in terms

of uh of what we expect for leading

indicators for CPI disinflation on

Housing Services so those are the two

most sticky forms of of inflation right

housing and then of course wage

inflation which leads to Services

inflation but then of course you still

have that concern about supply chain

nightmares and this continues to

disinflate even more as time goes on so

you're really creating anchor after

anchor after anchor the the only bear

like the bear case in my opinion is not

saying oh yeah inflation's actually

going to last very long it's just a

matter of how long does it take right

how long is that lag to actually see

this come through but some of these

charts are actually really striking so

here's a chart of sort of your supply

chain stress and you I drew those yellow

bars at the bottom just to drag over

where we sit at the median and average

right now you can see we're obviously

substantially off some of the coveted

highs and even below some other levels

but look at this delivery time indices

but well everywhere and the regional

United States via the institute for

Supply Chain management via the United

Kingdom Global measures Emerging Market

measures doesn't matter almost all of

them negative negative negative negative

negative in delivery times orders and

inventory ratios in other words you're

getting larger inventory buildups than

you actually have of orders

Ah that's also very interesting uh then

what do we have over here uh shipping

costs plummeting and this shipping cost

level in in the measure of a standard

deviation coming down three to four

percent via standard deviations is

pretty remarkable

and then the empty container ratio is

also a negative and this is all data as

of the last three months of indicators

here so you're really seeing a

plummeting of supply chain stress now a

lot of people and I was sort of pounding

the table saying No this is ridiculous

it's not going to happen a lot of people

were making this argument that oh well

as soon as as soon as don't worry the

moment China reopens you're going to see

a massive boost of supply chain stress

again and sort of you know in addition

to obviously research one of my base

arguments was wait wait wait wait wait

wait wait wait wait like China's been

open for 40 years and we've been

suffering from disinflation like chill

right uh and so what do you have here oh

look at this China's end to covet zero

had no aggregate impact on Port activity

you don't even see a spike in a supply

chain stress from covid or the coveted

reopening in China nothing absolutely

nothing and yeah China's activity

recovered in early February but that

activity was very very short-lived in

terms of some kind of surge you can see

that right here the red line represents

the consumption and services index

and you can really see the lockdown era

over here and over here right like these

bottom sections those are are really

your lock down arrows right here you had

sort of the brief reopening until we got

you know basically crushed by Delta

again in China uh and then you have your

sort of renewed lockdowns over here

thanks to Omicron and then here's your

temporary reopening okay so you get this

boost but now you're basically just I

mean if you draw a line across where we

sit right now and this is plummeting

right this level of economic measure is

plummeting draw a line across I mean

we're just basically at normalized 2019

levels if anything slightly below 2019

levels of consumption and services

indices for China so you're just you're

just not seeing this supply chain drama

uh despite you know all of the these

sort of Click bait that exists around oh

no supply chain nightmares and I think

by the way it it is on on the viewer

it's it's on you to make sure that when

you're reading because that's just the

world that we're in right now you know

we can kick and screen dream about as

much as we want but I think it's on you

the viewer to make sure that if you're

reading like tweets which is basically

like reading headlines or you're reading

headlines for stories or videos or

whatever it is it's on you to make sure

you're really going deep into the

context it's one of the reasons I

personally as much as I I like using

Twitter just to kind of get an idea of

sort of like okay well what are some of

the headlines that are going on Twitter

I think is is personally very very I

found toxic for for Humanity in this and

this is not to bag on Elon Musk but it's

because it seems to drive that

Sensational headline in this but only

that right it's very difficult to

actually get deep perspective on Twitter

because we're sort of programmed to only

see the headlines on Twitter and and

then there's no way to really deep dive

on something and I think it's very

dangerous because you know we see people

get canceled over a little out of

context Clips or headlines and that and

it's very sad because generally in the

context of of deeper knowledge you know

something that we can achieve either

through larger writing in books or deep

dive articles which nobody has time to

read anyway or what I like obviously

which is why this is one of my favorite

forms of communication is is a video

that you could play back on 2x right I

think uh you know I think that's a

phenomenal way to make sure you're

getting all of the perspective Beyond

just the headlines and and I think

really that onus falls upon uh the

viewer or the reader to make sure you're

going to that deeper level of

perspective most people won't do that

but I appreciate you for doing that so

keep it up I think that's the way to

ultimately build wealth the more

perspective you have so here's a sort of

gap between export volume for Asian

goods and US Goods that sounds extremely

complicated let me translate this to

English basically the red line says

we bought more crap from China than

normal okay so the blue little dotted

line says hey look that's normal Trend

red line which exploded there during the

pandemic is basically saying yo we buy

lots of stuff from China and and that

red line is finally falling back to the

prey pandemic trend line we're not quite

there yet but we're getting dang close

to matching that pre-pandemic trend line

which is absolutely fantastic then over

here you could again see a falling trade

volumes rapidly pushing freight costs

lower I specifically want to drag you to

this or call your attention to the left

chart over here it really shows you that

yes while some levels are still elevated

like China to Europe in fact if I just

go ahead and draw a line of uh you know

we'll go ahead and pick I'm trying to

pick a color here they don't have let's

pick Pink So if I drag the pink across

you could see the pink across is still

slightly elevated and even the red to

some degree is still slightly elevated

over the pre-pandemic era but but you

can clearly see the trend that China to

the U.S east Coast China to the U.S West

Coast basically plummeted to

pre-pandemic levels you still get a

little work to get the the global index

down on the China to Europe index down

but I mean the cost for Freight have

absolutely plummeted not only that uh

but it's worth noting that even though

we're seeing Goods disinflation U.S core

Goods spending so in other words you and

I spending on crap is still elevated and

that's probably because as Bank of

America told us and I'm sorry if it

sounds redundant but it's very very

important as a statistic that Bank of

America tells us that people stole

people who had two and a half to five

thousand dollars in their bank account

pre-pandemic now have 12.8 thousand

dollars that's you know on the low end

that's like five times as much money on

the high end that's two and a half times

as much money so of course people are

still spending money you know I mean

there's a reason American Express has

people are spending through this

recession is because

we got more you know everybody's just a

little bit richer than they were before

uh and so unfortunately that does create

some lags and how quickly uh

disinflation is going to happen but uh I

mean based on let me just be a crystal

clear here based on what I've seen with

wages earnings calls Supply chains

inflation is transitory like it's just

gonna be a lot longer and more painful

than previously thought and that's not

what we want to hear you know stronger

and longer lasting you know that's

something Jerome might want to hear in

certain cases but in in terms of his job

it's not something he wants to hear

uh slower momentum and good spending is

mirrored in the decline in manufacturing

order so yes slower momentum basically

means we're having less growth in

spending but actual spending is still

elevated above trend reduce demand

however uh in in general like sort of a

a slowing of that increase of the rate

of spending is helping clear inventory

backlogs and inventory time uh inventory

uh inventory backlogs and uh delivery

times let me make that very clear

if you're apple and you go from having

demand for 1 million iPhones to 2

million iPhones you you have you

experience a whole lot of change right

that's a lot of change very very fast

that inflection that rapid change in

demand that is very inflationary because

that's basically where all the goods

producers are like okay you you all of a

sudden want to double how many chips

you're ordering all right we're raising

prices then Apple raises prices and then

people pay more you know and and that's

how you get inflation but once Apple's

accustomed to 2 million and the momentum

goes from doubling to basically being

flat that's a lot easier to deal with

from an inflationary point of view than

these rapid changes uh and so as long as

we're stable the interesting thing is

you could be stable at a higher level

but you're not actually creating rapid

deflation because it's not like demands

all of a sudden going from now 2 million

iPhones back to one just as an example

right that's totally a made-up figure

but it's just a way to show it's that

it's those rapid changes that usually

create rapid inflation or deflation it's

not necessarily uh that the fact that

demand is going up or spending is going

up like as long as things move it

relatively constant Pace businesses can

slowly adapt shipping cues outside of

ports have mostly disappeared which is

absolutely fantastic we want to hear

that we don't want uh there to be uh

large wait times and containers sitting

outside ports which we had during the

pandemic because mostly well that ends

up sending the signal of is uh oh uh you

know people have to wait longer for

their goods and if people have to wait

longer for their goods and potentially

their services well then people raise

prices because you know well because uh

Builders or suppliers are able to raise

prices you know goods and service

providers Merchants basically are able

to raise prices because people will

demand for for a quicker product or

quicker service but those pressures are

really disappearing uh here you could

see chart wise shipping cues 94

reduction in containers in the port for

more than nine days and that's for the

Port of Long Beach port of long Los

Angeles you're sitting at a 92 percent

reduction over here Global semiconductor

production now this is really

interesting for the chips obviously I

think many of you know that I believe

that chips have substance actually High

pricing power I'm a big fan of believing

and investing in what I consider pricing

power stocks obviously that's not

personalized Financial advice for you

and while I do provide a lot of

perspective on on finances whether

that's here on the channel or in my

programs on building your wealth where

we have a Tesla investor day flash sale

going on uh basically we'll expire that

on investor day which is tomorrow

you know you can learn a lot of

perspective but but the point is I

strongly believe semiconductors have

massive pricing power unfortunately

semiconductor stocks have had a very

very hard 2022 specifically because of

this return to Trend right here now that

we're back at Trend I actually believe

the Bottom's already behind us on chips

and that's why I really started

increasing my investments into chips

right around the end of November and

December where I kind of thought we had

relatively Peak pain for uh for the chip

sectors uh so of course we still have in

some cases inventory gluts most

specifically in memory chips so I'm

saying if even within the chip space I'm

somewhat staying away uh from uh from

trips inventory for that reason uh in

the memory sector

so how does this all fit together well I

think it's worth noting that if the

supply chain pressures that were really

so convincing to people that oh this is

going to cause the most rapid inflation

we've seen in in 40 years which It

ultimately did if that supply chain

impetus and pressure is gone then maybe

we if we're you know very bearish on

inflation going forward maybe it's

important that we revise our

expectations and and yes realize that

okay things might take a little bit

longer than expected to normalize again

but so far everything we can look at in

terms of leading indicators again

whether it's uh you know the

availability of Labor or or Supply

chains is moving in the direction of

Rapid disinflation again though that

rapid disinflation might take until 2024

or 25 only the grand scheme of things

looking back from 20 20 30 maybe will we

be able to look back and go oh well duh

you guys printed funny any money all

over the place and he saw a rise and I

fall well duh right so it'll be a while

before we can actually say oh duh

inflation was transitory but but again

the the data is reiterating rapid

disinflation and I would I would

strongly caution against being terribly

bearish here in 2023. I'm not suggesting

YOLO margin and you know don't have a

cash buffer but any more than than a 10

cash buffer again not personalized

Financial advice I have to say that

because as soon as people start hearing

like allocations that people people

might misconstrue that potentially I

don't think you do but but some random

might uh and and that would be that

would be very very bad to do this is not

per I don't know what your personal

financial situation is but

for me I think any more than really a 10

cash allocation right now is is is a

substantial risk of a very big

opportunistic opportunity cost mask

unless of course you're saving for Real

Estate right look if you're saving for

Real Estate that's okay you know it's

still in in many regards after price

adjustments have occurred uh you know

there's there's very little inventory I

think you have to wait for sort of a

rise in inventory to really confirm a

bottom maybe that ryzen inventory will

never come it doesn't really so much

matter but what matters is that you know

you want to be cautious of potentially

buying now and then and then having that

leg down still ahead of you right I'd

rather wait a little bit and have

confirmation that that light down is

behind me

uh specifically in real estate uh anyway

where I think the recovery will be a

little slower given how long it'll take

for rates to come down but we'll see we

shall see this is not a real estate

video this is a supply chain

disinflation video so hopefully that was

um insightful to you