Jun 10, 2022
Supply Chains by the Numbers - FED 97
If you enjoy this content please SHARE, LIKE, SUBSCRIBE, and REVIEW on iTunes if you listen!
Fed Watch is the macro podcast for bitcoiners. Each episode we discuss current events in macro from across the globe, with an emphasis on central banks and currency matters.
In this episode of the Fed Watch podcast, I discuss supply and demand, demand destruction, supply chain bottlenecks, shipping and inventory in the US. I take a look at a few representative charts you can find below, including lumber futures, lithium futures, Baltic Dry Index, 40-foot container rates, US inventory glut, and others.
The below simple graph shows supply versus demand during a supply shock and follow on demand destruction. What we are about to see in the US is a huge spike in demand destruction, so the demand curve will shift to the left. This will cause a dramatic lowering of prices and shrinking of the economy.
Don’t be worried though, because most people can’t afford to keep the economy (demand) at current levels, and a lowering of demand will allow people to reallocate and get into a better place.
These are a few charts I use to show the relaxation of supply chain problems, and to demonstrate that prices will normalize.
Lumber is coming down.
Lithium is a market that combines many disparate aspects of the economy right now, all unique affected in this crisis: supply chains since it is mined mainly in Australia, Chile, and China; semiconductors since batteries are used in electronics; and electric cars whose demand is affected by oil prices and globalists agendas. As you can see, lithium prices are coming down for the first time in over a year.
The Baltic Dry Index ($BDI) is the rate for bulk raw materials like steel and coal. It too, is coming down, and far past the peak of mid-2021.
Freightos is an index for 40-foot container shipping rates. It is falling off a cliff, despite the China lockdowns in Shanghai and Beijing.
The following charts can be found in a recent post by Jeff Snider on Alhambra Partners blog. It shows the unprecedented increase in inventories that has occurred in the US over the last 6 months. It is already starting to affect retailers like Target, who this week announced stopping purchasing orders and slashing prices to fight glutted inventory.
What happens when demand softens (as it has been) and inventories start to get liquidated. Prices will fall dramatically.
This was the largest and fastest increase in inventories on record in the US. Compared to other periods of big inventory gains, like 2003-2005, which was a 7% increase over 20 months, this spike is 11.5% in only 6 months.
Lastly, I read through an article from FreightWaves which details the armageddon that is faced right now by shippers.
“This steady decline in volumes from China to the U.S. has also put significant downward pressure on spot rates from the demand side. As capacity remained relatively consistent in the first few weeks post-lockdown (March 28 onward), the drop in volumes caused a decline in both the Freightos Baltic Daily Index and the Drewry World Container Index spot rates from China/East Asia to the U.S. West Coast (down 41% per FEU month-over-month [m/m] – $9,630), as well as from China/East Asia to the U.S. East Coast (down 36% per FEU m/m – $11,907).”
Those numbers should perk anyone up, 41% month-over-month. Recession is coming, meaning tightening by the Fed is closer to the end than the beginning, and easing is just around the corner again. That is very good for bitcoin.
That does it for this week. Thanks to the watchers and listeners. If you enjoy this content please SUBSCRIBE, REVIEW on iTunes, and SHARE!
US Import demand is dropping off a cliff https://www.freightwaves.com/news/us-import-demand-drops-off-a-cliff
Written by Ansel Lindner