The Bullwhip Economy
Also: Gold Hedges Stagflation - Not A Bullwhip Economy
Not Stagflation. Hyperinflation.
Gold Hedges Stagflation - Not A Bullwhip Economy
Some Key Topping Charts
Not Stagflation. Hyperinflation.
There is reason to be fearful that this Trump-Netanyahu War on Iran (and now Lebanon and the West Bank) will be more-than protracted, wickedly expensive, and dangerously expansive - not just in the region but forcing countries around the globe to choose sides.
One area I am focused on is not just the “War Is Inflationary” aspects discussed early and often, and “the wrecking ball that is higher oil, higher yields, higher dollar, higher USDJPY... triggering lower AI investments and markets”. I presented my case back in mid-Feb and continue to hold that IRAN RISK IS NOT PRICED IN.
It’s March 22nd, and I am still saying it.
But now I am moving from the STAGFLATIONARY risks - ala the 1973 playbook I referenced for Silver back in my January client post warning of an impending metals crash, but also for this recent trigger of higher oil and its affect on inflation & inflation expectations driving yields higher.
So what has changed?
I don’t see just economic growth contracting and prices rising as the core risk.
I see a very dangerous BULLWHIP effect taking shape of much higher prices that trigger demand destruction on top of the supply disruption. There isn’t a recent playbook for that.
By bullwhip I mean there is a relatively small chokepoint (in size) from the Straight of Hormuz being restricted to only Iran-friendly ships (or those agreeing to pay in yuan not USD) that risks triggering a large (in effect) massive over-reaction in the supply chain (in prices).
Remember retail store Target over-ordering during Covid, reacting to the toilet-paper run and expecting prices to stay elevated across the board so they stocked up on everything, only to be punished when they had to take a financial hit with massive inventory write-downs? This management over-reaction helped to pummel its stock down -69% peak to trough.
In this new supply chain lock-down, I am less focused on stores/distributors/manufacturers over-ordering. The supply is off-line! Instead…
I am laser-focused on END PRICES that will start to be amplified up the chain - and what that will do the markets & economies the world over!
Oil is off-line to the tune of now ~20% of global supplies from US-Israel’s War on Iran, and now an additional ~20% of global supplies are off-line from the Russia-Ukraine War!
Russian oil companies may declare force majeure on baltic supply. via Reuters
Oil touches ~90% of every product produced.
Plastics/Chemicals
Steel/Aluminum
Shipping/Trucking
Air Travel/Ground Transportation
Heat/Cooling
Fertilizer/Food
Military/Medicine
the lists goes on…
The 1970s was a relatively isolated event where the oil was embargoed and rerouted, not removed.
This time is differnt. It is TOTALLY different and not easily remedied or replaced given the agendas and egos involved.
As such…
Every nation is affected by this. Every commodity, sector, and stock.
There are some that will be less affected than others; but none are immune.
More to the point, there is no modeling of this anywhere - as every affected party is in crisis simultaneously.
And ‘the system’ has no back-up for we swapped out expensive stock-piling for just-in-time inventory and lean manufacturing.
Efficiency optimization reflected in corporate earnings over the years has turned liability now.
And that’s just one reason I’m worried about the bullwhip affect: Groceries are going up with fuel prices, and they will keep going up until ... oil is back online!
But I do know there is little to hedge against with your invested capital - outside Energy stocks (oil, gas, coal) & selective Agriculture (commodities, specialty chemicals, fertilizer). We’ve been doing that already for months, and especially the past month. But at some point, volatility and credit stress will enter to reprice everything. And no Bitcoin does not fix this and not even Gold properly protects.
