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


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

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.

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

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

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

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

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.

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.


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
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.

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

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

Jan 21

I typically do not get into the weeds with short term outlooks. But in this 🧵I will make an exception.

I see the SPX at an inflection point, right here. If the trend is still up; the decline stops NOW.

If not, the next break marks a full-blown bear market.

In the last 48-hours, we are finally starting to see a bond "risk-off" rally.

Since Wednesday peak at 1.90%, the 10-year yield is down 16 basis points (chart).

The 2-year (not shown) traded down less, just 6 bps and the yield curve is flattening again, back to 74 bps. Image

I take this as a signal that now the bond market is getting "worried" about the stock market, so a risk-off bond rally is underway.

So, we have arrived at an inflection point, which coincides with the SPX breaking the 200d MA for the first time in 409 days Image
Read 6 tweets
Jan 21

Powell might not be chairman in 2 weeks, and it will not matter.

Sherrod Brown (D, OH), the head of the Senate finance committee, said the committee will most likely vote on the Powell/Brainard nominations in early Feb.
No date on the full Senate floor confirmation vote.

Powell's term as Fed Chairman ends January 31. His term as a "regular" Fed governor expires in 2028.

(The Fed chairman is also a "regular" Fed Governor, think of them as two separate things)

Brown told the press yesterday it doesn't matter that Powell technically expires as Chairman on the 31st.

All parties will probably agree to treat him as the Fed Chairman, and everything continues as is.

Your dysfunctional Government making things up.

Read 7 tweets
Jan 20

What do markets look like when they are freaking out?

Answer, like they look this week.

Why? The realization/fear that the Fed is going to slam on the brakes ... hard. And the panic that the stock market is going to get thrown through the windshield.

A 🧵to explain

Let's start with Tuesday (Jan 18). The SPX was down 1.8% the same day the 10-year yield was up 9 basis point.

This has only happened seven times since 2000 Image

And today

The S&P was up 1.53% at today's high. It closed down more than 1%.

Only 8 times since the Global Financial Crisis in 2009 has the S&P 500 been up more than 1.5% intraday and then finished down more than 1%. And 4 of the 8 were in March 2020 (bolded) Image
Read 10 tweets
Jan 14
A thread to go over my interpretation of interest rates.

First this is what the market currently has priced in. 36% for the 5th hike in Feb 2023 is the highest ever.

First hike in March is now 86%. At this point any talk of no hike in March would move the market.

Earlier this morning Mike Wilson of Morgan Stanley was on Bloomberg TV. He is looking for 1.60% on 2-year yields at mid-year (from 0.945%).

This fits our view that the 10-year minus 2-year curve can invert by mid-year.
Read 6 tweets
Jan 9

In some respects, what happened in bond markets last week was epic, something we might be talking about for many years.

A thread to explain

When discussing bond market moves, I believe the best metric is total return. It encompasses both price change and the level of yields (accrued interest).

The next set of charts show calendar week total returns. That is, the week ending Friday (Thursday if a holiday).

The 30-year data goes back to 1973 and last week was the worst calendar week total return in at least 49-year history! The long-bond lost 9.35%!!

If this was a year, a 9.35% total return loss would be the 5-year worst year ever.

Impressive for five days of work. Image
Read 14 tweets
Jan 6

Narrative is US cases will peak any day following South Africa pattern.

Keep in mind:

* South Africa is only 30% vaxxed (US 63%)
* It's young with few restrictions
* So, everyone "breathed on each other" cases went up 100x in 30 days and then peaked.

Why isn't Europe a better model for the US?

They are trying to prevent spread with restrictions/lockdowns (Dutch). So, they are dragging it out and made another new high yesterday.

EU is not willing to go 100x in 30 days like SA, so they are taking a longer time to peak.
If the US was indeed following South Africa and going to peak any day, our 7-day positive avg would be about 3M now, not ~600k.

We are trying to slow it down, and it is working!! EU leads the US by 6 weeks. If the EU peaks today, the US peaks in 2H of Feb at the earliest.
Read 5 tweets

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