Jim Bianco Profile picture
Oct 16, 2021 13 tweets 5 min read Read on X
1/13

The supply chain is running at capacity and cannot keep up with overstimulated demand thanks to 18 mos of fiscal/mon priming.

This suggests the fix is not expanding supply, hard in the ST, but to raise prices high enough to reduce demand.

A thread to explain

@RaoulGMI
2/13

The Los Angeles and Long Beach ports collectively unload just under one million containers a month. For the last year, they have been running at/near a record pace.

In other words, they are running as fast as they can. The problem is they are at their limit. Image
3/13

The much-heralded solution is to run the ports 24/7. The problem is the Long Beach terminals are already 24/7 and the LA terminals are already running 18 hours a day. These added hours at LA are only going to increase unloadings by 2%-3%. This is not going to matter much.
4/13

There are also problems getting these containers off the dock.
Unfortunately there is a trucking shortage, which has led to soaring trucking rates (chart).

Demanding more trucks at 3 AM to get these unloaded containers off the dock is going to be a taller order. Image
5/13

So even though the ports are running at capacity, the containers are going nowhere. This can be seen by the stagnate increase in rail car loadings.

The entire supply chain has to run beyond capacity at once for this to work. Good luck coordinating this. Image
6/13

This is leading to a backlog of ships anchored off LA.

And since these containers are taking longer to unload, shippers now have to factor in this dead time anchored off shore.

This is a disincentive to ship, so the number of empty containers are piling up in the ports. ImageImage
7/13

This is leading to a recent fall in container rates. No one is in a hurry to ship these containers back to China for reuse if they are going to just sit anchored off LA for many days. Then one has to struggle to find a truck to haul it away. Image
8/13

Many think the falling container rates mean the supply chain’s problems are being alleviated.

That would be true if these rates were falling along with the no. of ships anchored off LA, trucking rates, and the number of empty containers all falling as well. They are not.
9/13

The impression by many in the financial markets is this supply chain problem will be fixed in a few months.

They also though the same this summer when Biden similarly convened a meeting in June to fix this problem. But today it is worse than ever.

Why?
10/13

Simply, demand is booming. Below is personal consumption since 09, its trendline, and residuals (actual-trend).

Consumption is off the charts at $662B > trend.

Again, we want a record amount of stuff and the supply chain cannot handle it.

Too many stimmy checks. Image
11/13
So by ‘fixed’ many assume increasing the throughput of the supply chain to meet overstimulated demand over the short term is doable.

But if the problem is the supply chain is at capacity now, expanding will be hard/impossible over the next several months.
12/13

So to bring everything into balance, prices will rise until enough demand is destroyed to bring everything into line with the limits of the supply chain.

We might be seeing this happening as Q3 growth expectations are crumbling as prices are soaring. ImageImage
13/13

This is otherwise known as stagflation ... which simply means higher than average prices rises (inflation) accompanied by lower than average growth.

Wall Street viscerally hates this word. But that does not mean it is wrong. Just inconvenient if true.

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More from @biancoresearch

Apr 13
1/7

Yesterday, I made the case that tariff-driven inflation expectations are soaring, driving the bond market, and paralyzing the Fed from cutting despite fears of a recession.



In the 🧵I will address some retorts.
2/7

Yesterday I noted the soaring surveys of inflation expectations and included this chart. Image
3/7

The retort is the chart above, the Fed's favorite measure of inflation expectations (IE): the 5y/5y inflation breakeven.

This is the 5yr avg inflation rate in 5 years (10yr IE, the 5yr IE, and back into the 5yr/5yr IE).

It is slumping and nearly a 3-year low. Image
Read 7 tweets
Apr 12
1/16

What Happened to Bonds Last Week?

🧵

Last week, the 30-year yield rose 46 basis points last week to end at 4.87%.

As this chart shows, this was its biggest weekly rise since April 1987 (38 years ago!). Image
2/16

Why Did This Happen?

Let's start with what it was not. It was not data that suggested the economy was strong or recent inflation was high.

Here is a tick chart of the last 3-days of the 10-year yield.Image
3/16

The better-than-expected CPI and PPI reports (green) had no impact on the 10-year yield.

The worst-than-expected Michigan Survey (red), with its collapse in sentiment implying a severe slowdown or recession, did nothing to stop the drive in yields to the highs of the day.
Read 16 tweets
Apr 11
1/6

Bonds are getting crushed again today. Now it looks like selling is coming from foreigners, especially Europe.

China is believed to hold several hundred billion of US Treasuries in legal entities in Belgium and Luxembourg.
🧵
2/6

The 10-year continues to get crushed today ... just traded 4.57%.

Higher than Tuesday's peak of 4.51%

*US 10-YEAR YIELD HITS HIGHEST SINCE FEBRUARY AS SELLOFF RESUMES Image
3/6

Where is the selling coming from?
Answer: Europe

The dollar is going straight down, and US yields are going straight up as this chart shows.

This relationship has broken this week. Image
Read 6 tweets
Apr 10
1/4

How stressed are markets? By this metric, the most in 17 years.
---
SPY = The S&P 500 Index Trust. This was the first ETF created in 1993 and is one of the largest at $575 billion.
----
The middle panel is SPY's Net Asset Value (NAV). The price closed at a 90-basis-point premium to the underlying value of the assets.

The last time anything like this happened was 2008. To emphasize, not even in the crazy days of 2020 did its divergence get this big.Image
2/4

VOO = Vanguard S&P 500, $566 billion in assets

At the same time VOO, which is Vanguard's version of SPY, went out at one of its biggest discounts in years (middle panel). Image
3/4

Finally, IVV iShares Core S&P 500 ETF, $559 billion in assets
It has been trading at a persistent discount for a few weeks (middle panel). Image
Read 4 tweets
Apr 9
Something has broken tonight in the bond market. We are seeing a disorderly liquidation.

If I had to GUESS, the basis trade is in full unwind.

Since Friday's close to now ... the 30-year yield is up 56 bps, in three trading days.

The last time this yield rose this much in 3 days (close to close) was January 7, 1982, when the yield was 14%.

This kind of historic move is caused by a forced liquidation, not human managers make decisions about the outlook for rates at midnight ET.Image
It keeps going, the 30-year yield is now 5.00%!

As chart shows, since Sunday Night, 54 hours ago, the 30-year is up 67 basis points. Cannot find a move like this in my database.

The only overlay is the 30-year Gily blowing up during the Liz Truss moment" in September 2022. That was 130 bos in 5 days. We are now 67 bps 2 1/2 days.Image
S&P futures are down another 100 points or 2% tonight as I write. This sell-off might not be about tariffs but on the realization that the bond market is broken/breaking.

Markets are fragile. Tariffs broke the bond market and now this decline is about this realization.
---

A liquation is underway and must be completed, losing positions have to be exited, not supported or ignored.

Cutting rates and making financing rates cheaper in the middle of this kind of liquidation, encourages speculation ... exactly what is not needed in the middle of such a move.

I think the market knows this which is why the chart below shows only a 63% probability of a cut in rates in a month. Not intra-meeting! Rates cuts are not the answer.

The Fed restarting QE to artificially raise bond prices will only cement the belief that a massive spike in inflation is coming.

This is not a problem that can be fixed with "printing." It was years of "printing" that encouraged the massive build-up in speculation that is now being forced to liquidate.

You cannot drink yourself sober. You can encourage speculation by cutting rates/WE to stop a speculative unwind.Image
Read 7 tweets
Apr 7
1/n

Polymarket betting for an emergency rate cut is 26%. This looks consistent with April fed fund futures. Image
2/n

Fed fund futures now have spiked to a 77% probability of a rate cut on May 7. Image
3/n

Market are crashing and the economy barreling toward a recession. Image
Read 7 tweets

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