Fed Prevailed Again? But What About the Supply Chain?

Last week we asked if the Fed succeeded in propping up various markets yet again in the face of the many indications that signaled problems for at least stocks, if not bonds and precious metals. The answer seemed to be yes. Lo and behold, right on time, the markets put the Fed to the test again. And yet again, at least for the stock market, the Fed prevailed - if that's indeed what's going on.

We say "if" because "prevailed" may not be entirely accurate. Perhaps "manipulated" strikes a better chord. After all that's what the Fed has engaged in for decades now: manipulation. They've taken on the role of monkeying with interest rates and the money supply in order to keep the markets and the economy humming. And so, if the economy seems to weaken, they lower rates and pump out more money. Of course, this process lends itself to fostering what's known in some circles as "malinvestment," but that's a topic for another time.

For now, we have to say it's business as usual, even after the big drop in stock prices - followed by an even bigger rebound. How long can this go on? We'll surely find out - at least in the short run - in the coming weeks and months. As for the long-term, well, does it seem they can keep things from unraveling no matter what? Just askin'.

Some of us will go about our business skipping from up market to up market, counting on the Fed to save the day when things get out of control. Others of us will make preparations for what we consider the inevitable serious correction - or worse. But however all this plays out with the Fed, there's something going on that we all need to pay attention to - like NOW.

Many of you are aware of current issues with the supply chains upon which we rely for the goods we purchase. Perhaps you read or heard that on September 3rd GM announced the closing of virtually all its plants.That’s all as in ALL. Ford has closed more facilities after an initial close down. The supply of computer chips needed to build new cars has dwindled.

These may be just the most notorious shut-downs, and if we all have the cars we need that's not going to be a big deal. But there's more going on and it has and likely continue to cause shortages in many other products.

To understand what’s happening, here’s a description posted by Wolf Richter, an independent analyst whom we have found to reliable:

"Yesterday, just outside the ports of Los Angeles and Long Beach, a record 44 container ships were anchored, waiting. And there are hundreds of these ships hung up somewhere globally, trying to get into a port, or they’re being rerouted to different ports. And all this takes time.

And containers are stuck in ports because railroads are backlogged, trucking companies are troubled by driver shortages, and containers are hung up in railyards and clog them up to where some railroads have stopped routing trains to those particular railyards until the backlog is cleared, thereby further contributing to the pileup of containers at ports.

And each extra day that a loaded container doesn’t get to its destination is a day that it cannot be unloaded and returned to the flow of containers, and cannot be sent to a manufacturer that has goods ready to ship but cannot ship them because they cannot get empty containers."

With this in mind, the obvious suggestion would be that we all take inventory of items we consider necessary now, or that may be necessary in the near future. Unless you’re comfortable doing without such items, consider purchasing the items now, perhaps building whatever back-up inventory that you consider to be appropriate.

In the past, we have stressed, both to our client's and in the occasional blog post, the need for emergency supplies and equipment. The past 20 Covid-19 months should have reinforced this need. Now, with the supply chains for so many goods under increasing pressure, it’s not something most of us can afford to ignore.

So whether or not you think the markets need some serious attention, I think we might all agree the supply chain issues surely do.