Supply Chain Issues – It’s Not Complicated
CAMS Weekly View from the Corner – Week ending 9/10/21
September 13, 2021
One of the downsides of click-a-button and watch “x” product show up at the door step is we easily fall into subconscious magical thinking if you will. Click the button and like magic products arrive as if we physically manifested them ourselves. All the while, behind the button click all the way up to arrival at the doorstep there is a massive wheel of human action turning for those products to not only arrive but to be imagined, designed, procured, created, packaged and then ultimately delivered. The lynch pin in this process is human action and when humans are involved we can immediately look to motivation. Humans comprise many attributes. One attribute is the near machine like quality we take on via incentives. Simply, incentives play a key role in motivating human action. This invokes the wise adage when it comes to observing human action: Show me the incentive and I will show you the outcome. Taking up on the heels of this is the flip side: Show me the disincentive and I will show you the corresponding lack of action. The government has applied disincentives to working or incentives not to work – pick your favored side of the coin. No matter which side you choose, with no surprise via human behavior, it has and continues to work as we would expect. Enter JOLTS
Click For Larger View: https://fred.stlouisfed.org/graph/?g=GDur
JOLTS stand for Job Openings and Labor Turnover Survey which is published by the Bureau of Labor Statistics. The chart dates back twenty years for a larger perspective. With each passing month this report increases notably. With the above recent release it informs us of nearly 11 million unfilled jobs. For additional perspective, to begin 2021, it was posting in the 6 million range. We have shared this data in previous editions. Since the previous release, shared in an edition then, this has increased by 750,000 additional unfilled openings. For more perspective, the release before this had increased by 700,000. The trend rates are startling. The “show me the incentive and I will show you the outcome” is working to a tee. The citizenry at large has been incentivized not to work and they have obliged. No surprise. These numbers surely will begin to fall – or will they? There have been various programs from individual states that have been altered or ended which have resulted in increased employment and reduced unemployment. This is not nationwide though. This walks us back to the supply chain of which is highly interactive as it weaves through all the states as well as the world over. Adding to the on-going supply chain disruptions and corresponding price inflation trends are now vaccine mandates. The sitting Administration informs us 80 million Americans will need to be vaccinated while thus far having chosen not to do so. This begs the questions: Do we believe that 80 million U.S. citizens will fall in line having chosen to this point in time not to have done so? What percentage will choose not too? Furthermore, how does the percentage impact the already on-going supply chain issues realizing that products and services do not show up magically. The wheel of interactive human action may very well be grinding to further erosion. A recently surfaced example of this erosion is the eyebrow raising press release of Lewis County General Hospital in New York State. They have informed the public they will no longer be delivering babies. A hospital will not deliver babies? A full 27% of their staff has refused the vaccines to date. The maternity ward has experienced resignations rather than adhere to the aforementioned mandates. Do we think this will be an isolated storyline throughout the supply chain of goods and services? Ultimately Our Lane is Markets This brings us full-circle to the proverbial lane that we operate in. The stock market is not priced to perfection it is priced to the stratosphere. The valuation levels of this stock market are as startling as the trend rates depicted in the above JOLTS chart. (We will share more in coming editions.) The interesting thing on valuation levels is they never matter (very poor market timing tools) until they do. And when they do, particularly in the case of extremely stretched valuation level market backdrops, they can invoke startling downside movements to company stock prices. The Federal Reserve’s extreme money printing processes have played a notable role in inflating these markets to said stratosphere. They recently offered they may be removing or reducing said printing some time down the road perhaps by the end of the year or maybe sooner and possibly later. They remain ambiguous similar to their on-going view of price inflation – its “transitory” – underlining their ambiguity. Rest assured if existing supply chain issues remain, or worse, get worse, the FED will not be reducing their money printing operations. The supply chain issues then will continue to result in a continued challenging price inflation backdrop while the FED continues to print into said price inflation backdrop. Got uncertainty? Supply chain uncertainty, companies’ performance uncertainty, money printing uncertainty, price inflation uncertainty, international relations uncertainty – uncertainty is the operative word. Market history books are filled with storylines of market backdrops crumbling in light of uncertainty. Said differently, markets hate uncertainty. Reducing this to simplicity: Market participants are completely focused on the future and through this they price assets today according to what they see out there in the future. If they cannot “see” in light of too much uncertainty they prefer to hit the sell button rather than the buy button. Triple underline this when they are involved in a stock market that is priced to the stratosphere. Supply chain as well as general societal uncertainty is building and through this makes our extremely highly valued market vulnerable to downside issues. We suggest full attention be given to all of these moving parts as you perform your own market operations if not your head of household and general business planning. I wish you well…
Director, Market Research & Portfolio Analysis
H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP). This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”. A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.
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