World’s New Supply Trackers Flash Caution Amid Omicron Worries (Add Ukraine-Russia Tensions To The Mix)

COVID and its omicron variant (as well as government reactions such as mask and vaccination mandates) are wreaking havoc on the global economy, but particularly in the USA where the Federal government dumped trillions of dollars in fiscal stimulus along with The Federal Reserve’s monetary stimulus into an economy not prepared for it. The result? INFLATION.

But global supply chains are nearing a turning point that’s set to help determine whether logistics headwinds abate soon or keep restraining the global economy and prop up inflation well into 2022, according to several new barometers of the strains.

Just a week before the start of Lunar New Year, the holiday celebrated in China and across Asia that coincides with a peak shipping season, economists from Wall Street to the U.S. central bank are unveiling a string of models in the hope of detecting the first signs of relief in global commerce. 

From Europe to the U.S. and China, production and transportation have stayed bogged down in the early days of 2022 by labor and parts shortages, in part because of the fast-spreading omicron variant.

Among the big unknowns: whether solid demand from consumers and businesses will start to loosen up, allowing economies to finally see some easing in supply bottlenecks. Fresh indicators from the private and official sectors are in high demand because there’s still much uncertainty in industries overlooked by mainstream economics before the pandemic.

Once the realm of trade and industrial organization experts, supply chains “have shifted to center stage as a critical driver of sky-high inflation and a stumbling block to the recovery,” Bloomberg Chief Economist Tom Orlik said. “The profusion of new indices and trackers won’t unblock the arteries of the global economy any quicker. They should give policy makers and investors a better idea of how fast — or slowly — we are getting back to normal.”

The Bloomberg Economics Index

Bloomberg Economics’ latest supply constraint index for the U.S. shows that shortages have trended modestly lower for six months. Even so, strains remain elevated, and the wave of worker absenteeism is adding to the problems at the start of 2022.

Port traffic tracked by Bloomberg shows container congestion continues to rankle the U.S. supply chain from Charleston, South Carolina, to the West Coast. The tally of ships queuing for the neighboring gateways of Los Angeles and Long Beach, California, continued to extend into Mexican waters, totaling 111 vessels late Sunday, nearly double the amount in July.

Source: Bloomberg, IHS Markit, Genscape

Note: Data counts the total number of container ships combined in port and in offshore anchorage area.

Kuehne+Nagel’s Disruption Indicator

Kuehne+Nagel International AG last week launched its Seaexplorer disruption indicator, which the Swiss logistics company says aims to measure the efficiency of container shipping globally. It shows current disruptions at nine hot spots is hovering near “one of highest levels ever recorded,” with 80% of the problems happening at North American ports.

Seaexplorer disruption indicator as of Jan 20, 2022

Flexport’s Guages

Another freight forwarder, San Francisco-based Flexport Inc., last year developed its Post-Covid Indicator to try to pinpoint the shift by American consumers back to purchasing more services and away from pandemic-fueled goods. The latest reading released Jan. 14 “indicates the preference for goods will likely remain elevated during the first quarter of 2022.”

Flexport has a new Logistics Pressure Matrix with a heat map showing demand and logistics trends, and much of those numbers are still flashing yellow or red. Flexport supply chain economist Chris Rogers said in a recent online post that similar grids for Asia and European markets will be part of the research.

The Federal Reserve’s Stress Monitor

Adding their stamp to the burgeoning genre of supply stress indicators were three Ph.D. economists from the Federal Reserve Bank of New York, with the launch its Global Supply Chain Pressure Index. Rolled out earlier this month, it shows that the difficulties, “while still historically high, have peaked and might start to moderate somewhat going forward.” The New York Fed said it plans a follow-up report to quantify the impact of shocks on producer and consumer price inflation.

Morgan Stanley’s Index 

Less than a week later came the Morgan Stanley Supply Chain Index. It lined up with the Fed’s view that frictions have probably peaked, though some of improvement ahead will come from a slowdown in the demand for goods. 

“Supply disruptions remain a constraint to global trade recovery, but as firms continue to make capacity adjustments to address them, capacity expansion could mitigate these,” Morgan Stanley economists wrote in a report Jan. 12.

Citigroup’s Tool

Citigroup Inc. last week released research that was less optimistic yet complementary to the New York Fed’s work, which Citi said doesn’t factor the role of surging demand as a contributor to the supply disruptions. Sponsored Content The Collaboration Disconnect Atlassian

Co-written by Citi’s global chief economist Nathan Sheets, a former U.S. Treasury undersecretary for international affairs, the bank’s analysis “gives a more complete, and intuitive, picture of the current situation.” While strains may ease in coming months, Citi said, “these supply-chain pressures are likely to be present through the end of 2022 and, probably, into 2023 as well.”

The Keil Institute’s Flows Tracker

In Germany, the Kiel Institute for the World Economy updates twice a month its Trade Indicator, which looks at flows across the U.S., China and Europe. Its latest reading Jan. 20 shows that along the key trading route between Europe and Asia, there are 15% fewer goods moving than there would be under normal times. The last time the gap was that large was in mid-2020, when many economies were reeling from initial lockdowns, Kiel said.

More recently, “the omicron outbreak in China and the Chinese government’s containment attempts through hard lockdowns and plant closures are likely to have a negative impact on Europe in the spring,” says Vincent Stamer, head of the Kiel Trade Indicator, said in a post last week. “This is also supported by the fact that the amount of global goods stuck on container ships recently increased again.”

Baltic Dry Index

The Baltic Dry shipping cost index indicates that costs for shipping materials such as iron ore have decline to where it started under Biden, despite West Texas Crude Oil spot prices begin considerably higher thanks to Biden’s anti-fossil fuel policies.

So as the world comes out of Omicron (and whatever COVID variant rises to take its place), we should see a normalization in the supply chain. And with Intel building a new chip factory in New Albany Ohio (aka, outskirts of Columbus). the supply chain woes will eventually subside.

Then again, there is always the Russia-Ukraine tension that may erupt into a disaster. I suggest that President Biden sent Hunter Biden to Moscow to negotiate on behalf of The Ukraine.

Ain’t it funky now. The US’s new ambassador to Russia?

Bitcoin/Ethereum/Dow Slide As Gold Rebounds (Fun Times As $3.3 Trillion Options Expire)

Yes, it is fun times in markets this Friday as $3.3 trillion in options expire.

As of 9:52am EST, we see Bitcoin (white) and Ethereum (blue) falling along with the Dow (pink), while gold (gold) fell then rebounded.

European stock markets are down 2% today.

Global sovereign bond prices are up across the board internationally as yields decline.

Crude oil is down today while natural gas is soaring. In particular, look at UK natural gas prices!

Brrr.

Shipping Blues! Cass Freight Index Expenditures Rose 43.6% In 2021 While Baltic Dry Index Has Crashed Since October 2021 (Omicron Strikes!)

Ever wonder why prices are rising so fast? One reason is that with rapidly rising energy prices under the Biden Administration, the costs are getting passed-through to consumers in the form of higher prices.

According to the Cass Corp Freight Index, the total spent in December on shipping goods to their customers in the US spiked by 43.6% from December 2020 to December 2021. Not surprising since energy prices over the past year have soared by almost 50%.

But at the same time, the Baltic Dry index (The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal and steel) is crashing thanks to FEAR created by Omicron.

And yes, energy prices are surging again in 2022 after cooling off in Q4 2021.

Covid strikes!

People Get Ready! Value Stocks UP For 2022 While Growth Stocks DOWN (As Fed Expected To Withdraw COVID Stimulus)

People Get Ready! There’s a train a coming. Its called The Federal Reserve.

The market is pricing in 3 rate increases in 2022. And perhaps a faster than expected withdrawal of balance sheet stimulus.

As a result, The Russell 2000 Growth index is plunging (orange line) relative to the Russell 2000 Value index (white line) which is down in 2021.

The Société Générale (SGI) US value and “quality” indices are telling the same story. The SGI US “Quality” index is falling like a paralyzed falcon while the SGI US Value index is up for 2022.

It is somewhat mystifying that markets would be soooooo sensitive to 3 rate increases from The Fed, particularly since the Taylor Rule suggests that The Fed’s target rate should be 17.36%. Even if you don’t like the Taylor Rule or disagree with its inputs, you must admit that the gap between where The Fed is (0.25%) and where they should be (17.36%) is … k-razy.

But here is where we sit.

Simply Unaffordable! Housing Has Gotten More Unaffordable Over Past Year (Addicted To Gov)

Housing in the US is getting “simply unaffordable.” And it has gotten far worse over the past year. Thanks to BAD government policies.

While wage growth is positive, inflation is sucking the life from consumers. REAL average hourly earnings growth is -2.0133%. Even worse, home prices are rising at a 14.12% pace in REAL terms. So, wages are losing to inflation and housing is pulling away from renters in terms of affordability.`

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So it is not surprising that the University of Michigan consumer survey for “Buying Conditions For Housing” remains below 100 (meaning that more people think buying conditions for housing are negative than positive). With the Case-Shiller National home price index growing at a 19.51% YoY pace, it is no wonder that consumers are getting scared of the housing market.

Yes, US inflation is at a 40-year high and the 30-year Treasury Inflation Protected (TIP) yields is at -0.424%. That says quite a bit about the pickle US consumers are in.

US consumer confidence overall has declined to the lowest level since just after the financial crisis and housing bubble burst of 2008-9.


Doctor, Doctor (Yellen), please don’t try to make housing more “affordable” which will result in housing being even LESS affordable.

But I do like how Biden took credit for lowering gasoline prices a little after his anti-energy policies drove up gasoline prices in the first place from $2.20 to $3.40 a gallon, a 55% price increase. Thanks for nothing, Joe!

And with Omicron raging (with few reported deaths), Anthony Fauci, President Biden’s top medical adviser, indicated support for making vaccinations a requirement for domestic fights.

More loss of personal freedom, more government control. We are truly addicted to gov.

Post-Thanksgiving Indigestion: Inflation And Another COVID Scares Spooking Markets (Dow Futures Down 777 Pts, US Treasury 10Y Yield Down 11 BPS, Oil Drops 7%)

Thanksgiving has come and gone. But Americans have a lot to be scared about: inflation (turkey prices were up 24% according to the Farm Bureau and a new COVID outbreak B.1.1.529 — has been identified in South Africa.

Gut-wrenching inflation is already priced in, but yet another COVID outbreak (and the possibility of more economic shutdowns, more vax mandates and more stern lectures from Anthony Fauci) are spooking markets.

Down Futures are down 777 as I write this note.

The 10-year Treasury yield is down 11.2 basis points.

And West Texas Intermediate crude prices are down 6.62%.

Joe Biden: “Save the neck for me Clark!”

Transitory? US Export Prices Soar By 18% YoY (Exporting Inflation To The World!)

I wonder if Biden’s Press Secretary Jen Psaki will argue that inflation is transitory … again?

Well, the US is exporting inflation to our trading partners. US Export Prices by end use rose 18% YoY.

Of course, with the Biden Administration shutting down energy pipeline and drilling, it is not surprising.

Then we have the advance retail sales numbers for October. Growing at 16.3% YoY with massive monetary stimulus still in play.

Then we have Federal Reserve Bank of St. Louis President James Bullard saying that the central bank should speed up its reduction of monetary stimulus in response to a surge in U.S. inflation.

You mean like what Mankiw’s specification of the Taylor Rule model suggests??

Reverse Repos Parked Overnight At Fed Remain Near $1,418 BILLION As UBS Warns Of Stagflation And 50% Stock Plunge

When something is wrong with the economy.

Banks park funds at The Federal Reserve in an attempt to soothe themselves.

Nothing has been the same since the housing bubble of the 2000s, the resulting banking meltdown and the takeover of the economy by The Federal Reserve.

And since the 2000s housing bubble and financial crisis, The Federal Reserve has taken control of the economy resulting in M2 Money Velocity crashing to historic lows.

UBS ran a simulation that shows stocks could lose up to 50% under rare stagflation scenario.

And The Fed says “Hold on, we’re coming!”

My reaction to Biden’s Build Back Better spending spree and The Fed keeping rates repressed.

Thanksgiving Dinner Staples Are Low in Stock Thanks to Supply-Chain Issues And Federal Policies (Foodstuffs UP 36% From Last Year)

Combine vaccine mandates that lower the workforce and the flood of economic and monetary stimulus by the geniuses in Washington DC, and we have a Thanksgiving problem.

The supply-chain crunch is about to hit another part of American life: Thanksgiving dinner.

Supplies of food and household items are 4% to 11% lower than normal as of Oct. 31, according to data from market-research firm IRI. That figure isn’t far from the bare shelves of March 2020, when supplies were down 13%.

For grocery shoppers this holiday season, it means that someone with 20 items on their list would be out of luck on two of them.

Although U.S. supermarket operators started purchasing holiday items early, aiming to avoid shortages, many holiday essentials are already in short supply.

Turkeys are very low in stock. By the end of October turkeys were over 60% out of stock—lower than the same time last year by more than 30 percentage points. A spokesperson for Butterball LLC, one of the largest U.S. turkey processors, said the company has been experiencing similar labor and supply challenges as other organizations and industries.

Even if you can find a turkey, prices on foodstuffs in general are up 36% from last year.

And to get to the grandparents’ house of Thanksgiving, gasoline prices (regular) are up 24.5% from last year.

You can always shop at Neiman Marcus for a half Thanksgiving dinner for … $376 + $32 shipping. Not for the average American, more for NYC and DC elitists like Biden’s OCC nominee Saule Omarova who wants to bankrupt energy companies.

Biden could lower inflation by 1) stop mandating vaccines, 2) stop shutting off energy pipelines and oil exploration, 3) stop spending trillions of dollars other than Social Security, Medicare and defense.

Frankly, Thanksgiving has gotten so expensive due to Biden’s Reign of Error that I am thinking of alternatives to turkey. Like a Jersey Mike’s turkey and provolone sub.

Tuff Enough? Can US Consumers Stand Biden’s Energy Policies? (West Texas Crude UP 58%, Regular Gasoline UP 43%, Heating Oil UP 54% Since Biden Inauguration)

President Biden wants to know if you are Tuff Enough to stand rapidly rising energy prices as he shuts down American supply?

Since Biden’s inauguration, West Texas Intermediate crude prices have soared by 58%, regular gasoline prices have soared by 43% and heating oil has soared by 54%.

How do you spell Federal energy policies? M-O-N-E-Y!

Meanwhile, US households are told to put on more blankets and drive less while the DC elites (like Obama, Kerry and Yellen) fly around the world in fossil-fuel guzzling jets lecturing everyone on the need to get rid of fossil fuels.

Odd, since annual CO2 emissions have declined significantly from 2007 levels.

The face of Biden’s energy policies. Blah-blah-blah.