The current bubble in global financial assets won’t end well, plus more price hikes coming in 2022.
This Won’t End Well
January 6 (King World News) – Otavio Costa: Today we have the largest percentage of non-profitable software stocks in the history of this industry. This proportion is almost twice what it used to be at the peak of the tech bubble.
Arsonist Turned Firefighter
Peter Boockvar: I want to quote here what former Fed Chair Ben ‘arsonist turned firefighter’ Bernanke said in a November 4th, 2010 editorial he wrote in the Washington Post defending QE1 and the onset of QE2 in terms of its impact on stocks. With respect to QE1 and at the time the newly implemented QE2, “This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth…And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
Thus, rather than relying on savings, investment, and quicker income to driver economic growth, QE was specifically meant to lift stock prices in order to so instead. It is not a symptom of QE, it was a direct intended effect. In reverse, the response in stocks should not be a surprise…
New interview from legend Doug Casey discussing gold, silver and
global chaos! To listen click here or on the image below.
The December ISM services index fell to 62 from 69.1 and that was well below the estimate of 67. New orders fell by 8.2 pts to 61.5 and backlogs were lower by 3.6 pts to 62.3. Inventories remained below 50, down by 1.5 pts to 46.7. Employment declined by 1.6 pts to 54.9 but after jumping by 4.9 pts in November. The trade components were up but only some service companies report them. On the supply and price side, supplier deliveries dropped by almost 12 pts to 63.9 which is the lowest since March 2021 (again, measuring the direction of change, not degree).
Prices paid were little changed at 82.5 but that’s still just off the highest since 2005. All 18 industries surveyed saw higher prices paid for the 5th straight month.
Of the 18 industries asked, 16 saw growth vs 18 in the two prior months.
ISM said “Although there was a pullback for most of the indexes in December, the rate of growth remains strong for the services sector” but here’s the catch, “respondents have indicated that they continue to struggle with inflation, supply chain disruptions, capacity constraints, logistical challenges and shortages of labor and materials.”
More Price Hikes Coming In 2022
While it does seem like we’ve reached peak strain in the supply chain, many companies are still under a lot of stress and more price hikes are coming. I highlight these quotes to point out that the inflationary environment we are in will still take time to work through. Here they are:
Accommodation & Food Services
“Supply chain challenges to procure supplies for our restaurants remains our greatest obstacle at present, along with staffing needs. We are considering another price increase after just one in 2021, in August.”
Construction
“The escalation in costs for materials, fuel, labor, lodging and the like continues to negatively impact margins in an unsustainable direction.”
Information
“Most upstream production materials are being pressured by constrained supply chains as well as domestic transportation challenges. Vendors are trying not to pass on expenses, but their margins are such that they will need to raise prices. While we have done a good job holding prices down, we will not be able to hold the vendors at bay. All (cost of goods) will be impacted.”
Other Services
“Activity continues to maintain a steady pace. Inventory levels and outages are persistent with our suppliers; however, starting to see some relief in the supply chain, but not below the critical point yet. Prices continue to be driven up, with shipping costs the largest driver due to inflated pressures on capacity and fuel costs.” (Other services)
Professional, Scientific & Technical Services
“Electronic chip shortage is severely affecting deliveries from our supply base, thus impacting our ability to deliver to customers.”
Retail Trade
“Long lead times, transportation bottlenecks, delivery inconsistency and price increases continue to affect a range of products.”
Utilities
“We continue to experience supply chain disruptions across the nation and around the globe, resulting in raw material and subcomponent shortages, longer manufacturer lead times, transportation resource constraints, labor pool issues and significant price increases. Supply management continues to recommend pulling in demand, placing orders earlier than historical lead times for long lead time materials, and qualifying secondary sources of supply (if applicable).”
Wholesale Trade
“Demand is good, but supply chain issues continue to get worse. Trucking availability is worsening. Labor shortages are causing issues. We could do much more business if we had more people and access to more products.”
***To listen to Robert Arnott discuss what surprises to expect in 2022 as well as what to expect in global markets CLICK HERE OR ON THE IMAGE BELOW.
To listen to Alasdair Macleod discuss the setup for the gold and silver markets in 2022 CLICK HERE OR ON THE IMAGE BELOW.
Setup As We Kickoff 2022
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ALSO RELEASED: Rob Arnott On The Bang Moment And The Coming Great Awakening CLICK HERE TO READ.
ALSO RELEASED: Uncharted Waters As We Kickoff 2022 But There Will Be A Big Test In The First Half Of The Year CLICK HERE TO READ.
ALSO RELEASED: Here Is The Setup As We Kickoff 2022 CLICK HERE TO READ.
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