#BullWhip effect as per @michaeljburry:
All know that rising #inflation is negative for #Equity markets as #CentralBanks (CB) tend to raise rates to control #demand - which in turn can lead to #Recession. During this phase #demand outpaces #supply.
@PensionCraft
All know that rising #inflation is negative for #Equity markets as #CentralBanks (CB) tend to raise rates to control #demand - which in turn can lead to #Recession. During this phase #demand outpaces #supply.
@PensionCraft
Demand contracts for some time and supply also contracts with a lag. Post that demand starts to rise (post COVID), prompting manufacturers to increase supply disproportionately - creating a supply glut. This puts downward pressure on prices,inflation comes down. CBs turn dovish
This creates disinflationary phenomena. Though looks good on paper for equity markets, prices of all products come down substantially.
This is called #BullWhip effect.
Supply outpaces demand. Prices collapse, inventories pile up, margins shrink.
This slows earnings growth
This is called #BullWhip effect.
Supply outpaces demand. Prices collapse, inventories pile up, margins shrink.
This slows earnings growth
Earnings decline happens gradually over next few quarters. Downgrades in forecast earnings happen at this stage. 3 major economies like US, China and Euro likely in recession.
Markets will take positive cues from reducing inflation & hawkish tones of CBs at this stage
Markets will take positive cues from reducing inflation & hawkish tones of CBs at this stage
That can happen by September when markets may take positive cues and rally, but ultimately, #BullWhip effect will have its impact on disinflation, falling prices, rising inventories, falling margins and falling earnings growth forecast.
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