For much of 2021 we were shown photos of container ship parking lots drifting far out to sea – with dire warnings of inventory crises and mass shortages.
But today, Leonard Steinberg shared this in his Compass blog:
“….The ‘PORT CRISIS’ we heard so much about a few months ago seems to be waning too…. The total number of container ships waiting for berths at U.S. ports has dropped by 47% since peaking in early February. The Ports of Los Angeles, Long Beach, and New York/New Jersey – the top 3 for container volume to the U.S. – imported 260,000 more containers in March versus February, a 12% increase and the all-time highest month. (FT).”
And – in regard to inventories, Leonard shared this: “U.S. Business inventories surged 14.7% YOY in March. Have you noticed the return of the ‘sale’ and ‘discount’ notifications? (Reuters)”
I share this because it is exactly what Jeff Snider of Eurodollar University fame predicted months ago, long before we saw any signs of improvement.
Snider explained that the port crises and shortages in general were caused by a temporary surge in demand from excess government stimulus and COVID lockdowns easing up. He further explained that continued COVID-related restrictions were tying up supply chains, but that they would untangle as demand waned and shippers continued to fix supply chains.
He also predicted, and this is key, we would see a massive surplus of inventory, as many retailers over-ordered in response to all of the predictions of permanent shortages. He predicted we’d see this by fall, but given that we are already seeing excess inventory, I can’t imagine how bad the issue will be this fall.
Money Supply Did Not Increase as Much as People Think
And last but not least, Snider explained again and again how we do not really have “monetary inflation” caused by a surplus of dollars, like most of the world thinks. This is because most of the world’s money supply is created by commercial bank lending and NOT by central banks, and commercial banks are not lending.
So – yes, we are seeing prices increase due to supply shocks, government stimulus and demand surges. And – we will likely continue to see many prices increase as higher wages, shipping costs and energy prices work their way into manufacturing costs.
But – we will also almost certainly see some prices fall as the economy slows, demand continues to wane and retailers realize they will need to lower prices to clear excess inventory.
The Pragmatists Were Right – And Why It Matters
So, it appears that Jeff Snider and Barry Habib (who mimicked many of Snider’s predictions) are both being proven right.
This is in sharp contrast to many other macro-observers who predicted runaway inflation and doom and gloom because “the U.S. money supply increased more over the last two years than it ever has in history…” It didn’t, once again, because banks are not lending, per Snider, and because just looking at the U.S. (and not the entire world) is too narrow of a focus.
Both Habib and Snider are “pragmatists” with no political axe to grind; they both do an immense amount of research and objectively try to illuminate data without making any team right or wrong. And that is why they tend to be right more often than not, and that is also why I trust them more than other pundits.
It matters so much because we are all trying to make business and financial decisions that depend heavily on what will happen in the future. And because of that, we need pragmatic pundits we can trust.
And – it appears so far that Snider and Habib are already being proven right. In light of that and in light of their other predictions, I think we can now expect a recession and lower rates in the future with even more likelihood.
So again, today’s buyers should take comfort in the fact that they will very likely be able to refi into a lower rate in the near future.
Who Will Take Credit?
Sadly, the Fed will take credit for fighting off the inflation dragon, but much of the inflation relief (supply chains untangling; demand waning; inventories stacking up; lack of bank lending) would have taken place no matter what the Fed did.
If the Fed officials stuck their fingers in their ears and ran around in circles screaming “inflation go away” for three months, inflation still would have waned and the Fed would have insisted it was running around in circles that fixed the problem…
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