let's talk about supply chains

[McNutty]

Raffers, give me your theories on what the supply chain problems are going to do to the stock market. I'm a little worried about it, which obviously makes me wonder how I can protect myself and/or profit from it :leafy:

I realize it's a complex system and it's really hard to predict long term effects of some side input, but I'm surprised that I haven't seen many thorough discussions of what might happen. Maybe I'm not reading the right forums or listening to the right pundits. But it seems like there will be some kind of effect from this. I've played "the beer game" and I know just how surprisingly fucked up even the simplest supply chain can get and how long it can take to un-fuck it, just by having some parameters off by a little. And at the moment, it seems some parameters are off by a lot.

In particular, I'm wondering about the effect on businesses that can't supply their customers, and the follow-on effect of those businesses' employees losing their jobs and having to tighten belts and whatnot. I recently bought a new place and decided to do the crazy thing and completely furnish it by going to the store and pointing at what I like -- an absolute first from me, but hey, I had a bonus burning a hole in my pocket and it was my first post-divorce place of my own and I said fuck it I'm dropping some money on furniture. This was in august. I picked out a bunch of nice stuff and said please sir could you put this all in my house at your earliest convenience and I'll just hand you a bunch of cash? And he said, wellllllllllll, yes but. Those two pieces aren't available until mid-to-late october*. That piece is backordered til December. This and this are supposed to arrive in February, but we aren't sure. But we can have this end table to you tomorrow! And so I went shopping around to all the furniture stores in the area. 7 different stores told me the same story. Everything's fucked. IKEA's shelves are bare. Wowzers. Then I needed to get closet organizers installed for the kids, since their closets were large and empty and the place is kinda small so rather than buy furniture to fill up space, I decided to spend the money on shelving and drawers and whatnot in the closets. Money well spent, right? Well, except no closet installer people can get parts until after the new year. WTF.

So I resigned to ordering all that stuff and just ... waiting approximately forever. But all the while, I'm thinking, "how long can these businesses take this situation?" Sales must be in the toilet because when people find out they're not getting their stuff anytime soon, they're just going to bail. The salespeople are gonna get laid off. They're gonna stop buying stuff. Even when the supply chain farts out some stuff, the businesses won't be prepared to sell it because their salespeople will have been laid off.

The weird interaction between the auto industry, the rental car industry, and the computer chip industry is also very interesting. I found an interesting story in a Hacker News thread about why these things are related, in a long comment from a user named Kliment here: link (https://news.ycombinator.com/item?id=26931244).

I don't really know what effect this has had on my company, but our appetite for datacenter hardware (not just computers but racks, networking gear, cooling systems, etc) is voracious and being unable to satisfy that would definitely affect our expansion plans in a big way.

Anyway, the short term effect is not subtle and it seems like the ripples could be very long lasting. What do you all think this does to the stock market?


* they called a month later to update this estimate to Late November. I've been sitting on camp chairs for a couple months now :rebo:

[What Exit?]

Manufacturers are going to have to ease up on JIT Just In Time stocking. They're going to have to lay in more supplies and take a bigger chance of ending up with some dead inventory like in the bad old days of the distant 90s.

Things will be a bit thin for a while but then catch back up. Most of this is in the distribution part of the chain and not actual shortages.

One bright note is the wood shortage is already done and that part of the supply chain is nearly back to normal. Though this hardly helps with closet organizers that don't use wood, which is most.

Cars have very large and spread out supply chains and have used JIT longer than anyone. My first exposure to it as a programmer was always about car manufacturing.

For microchips, new factories are apparently coming online. This was one of the most dangerous areas as most of the advance chips were coming from one place.

So we're in for probably another 2 years of rising prices and weird disruptions.



As to the Stock Market, money keeps pouring into it, especially until bonds recover some investment value. So while things might shuffle around, it is unlikely to take another hit like March 2020 anytime soon. When it does, ride it out. Be diverse. Index funds are about as safe a bet as you can make and they do earn over the long haul.

For those near retirement it is a lot tougher and I don't have any great advice. Inflation is going to outstrip bonds and it is hard to predict anything else. Hopefully conservative and diverse investments will prevent harsh problems in the early years of retirement.

[Rat Diva]

One odd situation I've run into is styrofoam cups. I keep a bag in my desk at work, and the last time I needed them I couldn't find them in any of the local stores and on Amazon they were at least 4 times more expensive than they used to be. Between supply chain issues to the manufacturers, and increased demand from restaurants who have gone to takeout only or single-use tableware, normal stocks are depleted and prices are way up.

The shortages I've run into have been odd and local. Like, my CVS is nearly out of every kind of toothpaste and toothbrushes but the grocery stores have them. One store is almost completely out of Gatorade but a different store not far away has plenty. Some places you can't get the cut of meat you want but prices on the other stuff aren't as horrible as they've been.

And I was recently at the IKEA in Conshohocken, PA (about an hour from Philly) and they were fully stocked except their frozen food section.

PS: Sorry to hear about your divorce, and about the camp chairs. I hope you're doing as well as possible with what those chairs must be doing to your back.

[Solfy]

I work for a company that is primarily B2B, though we have some direct-to-consumer lines. I can give you my perspective:

On the procurement side, we frequently can't get what we need to make our products and we're getting hit with both distribution- and production-related shortages. In some cases our suppliers can't get their raw materials and it's trickling down. Or we can make the product, but we can't get the lids for the containers we sell it in, so we can't ship it out. The only good news, if you can call it that, is that our competitors are in the exact same boat. We all use the same packaging components, we all can't get can lids. Sometimes the lack of supply crosses industries. I ordered a mattress last April from a company that makes them to order. Normally they would have been able to get me one fresh off the factory floor within days. The raw materials for the foams in the mattress are some of the same ones we're struggling to get at work (I think they were hit by the freeze in the gulf), so I had to wait a few weeks. Doesn't matter, still got my mattress eventually.

It's the downside to just-in-time inventory. Sure you're not sitting on a pile of stock, but that means you can't give your customers the instant gratification they need to keep their just-in-time inventory rolling. One little disruption and they all go down like dominoes, and there's no telling what other products/industries are going to be caught in the cross fire. As the long comment in the linked thread points out, this is all a perfect storm of failure to correctly predict demand coupled with deliberate supply chain fuckery coupled with legitimate fuckery in the form of natural disasters.

Fortunately if you're someone waiting for furniture or a mattress, you can wait. It sucks, but what are you going to do? It's not like you can go buy your mattress somewhere else because all the mattress companies are in the same bind. You're not going to give up and spend the rest of your life sleeping on a pile of straw, so the demand isn't evaporating. I think the answer to "lots of laid off salespeople due to lax demand" has already been "fine, we'll have one salesperson, cut our hours, and try to get people to buy online to lower our overhead" throughout the pandemic and I don't see that ever going back completely to the way it was.

On the customer side, we're a tier one supplier to the auto industry. New builds are down because of the chip shortage, which definitely impacts our bottom line. That segment is not having a good year. Again our competitors are all in the same ugly boat with us. I guess the silver lining is it keeps that business from having procurement heartburn? Don't need to fight for raw materials if your customers can't use your product.

What does it mean for our stock? It makes predictions extra hard, but that cuts both ways. Our third quarter results beat expectations which had been adjusted down because of all the chaos. But we're all bracing for the supply chain chickens to come home to roost over the next couple of quarters. Will pent up demand cause a spike in buying when things loosen up? (e.g. people like me with old cars they want to replace will buy one eventually when they become available) Will some of that revenue be lost forever? (e.g. commercial air travel is never going to make back those flights they didn't sell over the past two years) I think the just-in-time nature of the supply chain means that it screws up easily but can also correct itself quickly, so while we'll continue to see lots of weird spikes and shortages, things can smooth out almost as quickly as they screwed up (i.e. a year or two). I also think people are addicted to JIT and won't abandon it long term.

[What Exit?]

They won't abandon JIT, but some and hopefully many companies will ease it. I saw a steady shrinking in on-hand safety stock across 4 industries between 1993 and 2019. I think the safety stock numbers will be allowed to increase.

JIT is dangerous long term. Hell the company I worked at longest, 33% of its business relied on a single plant being able to deliver product for their stamping needs. That plant catching fire would be almost as bad as our plant catching fire. So pretty vulnerable. We didn't have a good or fast alternative.

This company thankfully kept about as much on hand as space allowed. But usually if one finished good stopped being purchased, the raw material could be used for several others.




In the fragrance world, the purchasing department was often scrambling to find some rare oil that got stuck in customs from Asia. Thankfully the purchasers at many of the fragrance companies all experienced similar issues and were usually good at helping each other.

I know fine fragrance sales are way down since the COVID crisis started but if not for that, the shipping issues from Asia right now would probably be causing massive manufacturing issues in that industry. They might anyway, I'm no longer inside that industry.

[Solfy]

JIT is dangerous long term. Hell the company I worked at longest, 33% of its business relied on a single plant being able to deliver product for their stamping needs. That plant catching fire would be almost as bad as our plant catching fire. So pretty vulnerable. We didn't have a good or fast alternative.

That's not necessarily a JIT problem so much as a dangerous procurement practice. Single sourcing a critical raw material is a huge risk even if you're carrying more buffer inventory.

[BeeGee]

I can’t answer regarding the stock market, but as a buyer, I can say that certain electronics companies are predicting shortages in the supply chain to be affected through 2024. I find that a lot of companies are simply hedging their bets. Dell has been giving me three to four month lead times on laptops, but they suddenly sent me a CrapTon of tracking numbers. Something shook loose somewhere and things got finished. Cisco is quoting EVERYTHING at 182 days lead time and if you say really?, they say ok, we’ll aim for 26 weeks. Funny guys.

Engineers are finding work arounds for the most part, but we had one guy flip his wig and as a result, our newest buyer quit the next day. Now we’re short two people and the other woman who’s been here 20+ years is retiring in January. No one wants to work in the supply chain right now because people get all nasty about the lead times.

On a personal note, I can deal with the hissy fit throwers. I was a special ed teacher for awhile and I still have The Voice if I need it. It’s the Doomsday Profits* that make me tired. It is NOT this way to stay anymore than the other recessions and bust/booms have been. It’s a temporary setback, albeit a major one.

*Doomsday Profits spelled that way because they predict 200% rises in costs and shit like that. The word “temporary” doesn’t exist for them. It’s all or nothing and always going to go bad. It’s like working with Ashanti.

[SmartAleq]

China is in big trouble. Evergrande, China's largest real estate development company, is probably bankrupt (although nobody's reporting it as such to avoid panic) but it's defaulting on its bond obligations briskly, and six or so other real estate companies are right behind it. Doesn't seem like much until you realize that Evergrande was the 122nd largest company in the WORLD and its monthly expenditures for materials, labor and debt obligations totalled 2% of the GDP of the entire country. Pretty sure this is gonna have all kinds of knock on effects all up and down the supply chain due to other unrelated companies suddenly losing a lot of customer base locally along with losing money if they're invested in the real estate market in China.

Truckers. Long haul and port truckers especially. Many of them were going bankrupt on the installment plan, with high monthly bills for loan payments on their very spendy trucks and neverending fuel bills crashing right into a squeeze to lower their per mile pay at every turn. Pandemic hits, many of them lost their trucks and now those ships that do come in from China are sitting off the coast waiting their turn to be unloaded at the port but there's nobody to take the stuff and truck it out of there. And let's say a ship does get a port slot--container ships have thousands of loads per ship and say there's a load of very high dollar stuff on there and ten loads of low dollar but direly needed stuff like parts for machinery and hardware and consumer goods. The high dollar load owner ups their offer to get their load to the top of the list and everybody else languishes because nobody's willing to pay more to get a trucker interested in taking their stuff. Repeat ad nauseam for every port in the country.

It's just gonna get worse, too. Maybe we'll pull our thumbs out and figure it's worthwhile to start manufacturing locally again, which would help, but we're still hamstrung for raw materials. Maybe corporations will figure out that when the majority of your shit relies on truckers to bring it to market you should maybe pay them enough to live on and stop trying to force them into debt based indentured servitude but I'm not gonna hold my breath. The rich elites have had it all their way for a very long time, they are loath to give up even an iota of their advantages. Probably gonna suck hard for a while. I'd stock up on stuff if I were a betting woman.

Oh, and in regards to the stock market, Wall Street is balls deep in Chinese bonds so hey, buckle up.

[silenus]

It might do to invest in bourbon futures. Domestically produced and demand is only going to go up.

[Pencil]

b1JlYZQG3lI

It's from June 1st, but i still think it's relevant.

[What Exit?]

b1JlYZQG3lI

It's from June 1st, but i still think it's relevant.

Any chance of a summary or highlights?

[Pencil]

b1JlYZQG3lI

It's from June 1st, but i still think it's relevant.

Any chance of a summary or highlights?
TL;DW
America imports stuff, doesn't export. Shipping containers stuck in wrong place.


On a more serious note: an indictment of Just In Time practices.

[Jaglavak]

The one thing you need to understand today's stock market is this: (https://edition.cnn.com/2021/10/16/economy/supply-chain-economy-analysis)


"There's just as much uncertainty now, today, as there was in March 2020 as the pandemic was unfolding," said Mike O'Rourke, chief market strategist at Jones Trading.

The only difference, he says, is that investors now are swimming in easy money that's allowed them to shrug off the grim headlines. All of that cash has neutralized the signals investors might otherwise receive that trouble is afoot.

"It's $10 trillion of fiscal and monetary stimulus pumped into a $22 trillion economy... There's much liquidity, and everyone feels good about it that they're ignoring those headlines, those risks, for the time being," O'Rourke said. "But it's unlikely they'll ignore them forever."

[Lounsbury]

While as a logistics investor this has all been in short-term quite brilliant for me, 40% ebitda margins though will not last.

China is in big trouble.

Maybe. Internal debt in China is largely held between state entities. It is not a normal market.
Evergrande, China's largest real estate development company, is probably bankrupt (although nobody's reporting it as such to avoid panic) but it's defaulting on its bond obligations briskly, and six or so other real estate companies are right behind it.

Everyone knows they're insolvent, "nobody" is a false statement. Anyone who reads financial press knows very well. However China is not a normal market nor is the structure of domestic debt really market based.

Truckers. Long haul and port truckers especially.

This is pandemic not bankrupticies.

too. Maybe we'll pull our thumbs out and figure it's worthwhile to start manufacturing locally again,

Provincialism is not good economics nor rational -but hemp headed hard Left innumerates shall continue to be anti globalisation regardless.

Low value mfg either requires heavy capital investment.

Ill-informed nostalgia for 1960 is bad policy although adored by innumerate populists of Left and Right.

Oh, and in regards to the stock market, Wall Street is balls deep in Chinese bonds so hey, buckle up.

As usual hemp-head has no clue and parroting innumerate hard left ignorant blithering on.

Overseas (non-domestic) held debt is around the same size as French, big certainly on per capita basis, but is hardly stuff into USA (although of course hemp head would not know the differnce). It is difficult to be precise about where Chinese debt is held, but USA Wall STreet is hardly "stuffed"
However Chinese defaults can present a risk if one of the hedge funds playing on Chinese debt has the right (or wrong depending on the perspective) counter parties and triggers a Lehman (or from American perspective, more likely a Credit Anstalt) moment via counterparty risk. More likely via London than NY really.

The one thing you need to understand today's stock market is this: (https://edition.cnn.com/2021/10/16/economy/supply-chain-economy-analysis)


"There's just as much uncertainty now, today, as there was in March 2020 as the pandemic was unfolding," said Mike O'Rourke, chief market strategist at Jones Trading.

The only difference, he says, is that investors now are swimming in easy money that's allowed them to shrug off the grim headlines. All of that cash has neutralized the signals investors might otherwise receive that trouble is afoot.

"It's $10 trillion of fiscal and monetary stimulus pumped into a $22 trillion economy... There's much liquidity, and everyone feels good about it that they're ignoring those headlines, those risks, for the time being," O'Rourke said. "But it's unlikely they'll ignore them forever."

There are indeed major stresses between liquidity sloshing around and the market situ.



Any chance of a summary or highlights?
TL;DW
America imports stuff, doesn't export. Shipping containers stuck in wrong place.


On a more serious note: an indictment of Just In Time practices.

It is more a critique of superficial American implementation of Toyoto model with under-investment in buffers on inventories and weak planning on principals - like all tools there are trade offs and one needs to understand
(as it is stated in the video proper implementation works, but improper is brittle).

More accurately however, America imports low-value high-volume/mass physical product, USA exports are heavily concentrated in low-volume high-value product as well as very high value no-volume (in physical terms) services.

[Pencil]

Yeah, that was my take from the video as well. But he wanted a 20 words or less summary, so I cut corners.

Newspapers here over in IKEA-land are reporting that supply problems are causing losses. IKEA is not dependent on chips, as are automakers, but demands are high and the factories are working. But it seems as if things just can't get here from there.

[Lounsbury]

Yeah, that was my take from the video as well. But he wanted a 20 words or less summary, so I cut corners.

That leads to wrong conclusions.

While Left and Right populist nostalgia for a semi-mythologised 1960s economy is popular, it's also rather wrong superficialism and basically good old days nostalgie.

Just in Time has squeezed out inefficiencies - dead inventory is inefficient - but of course like any development can be done poorly or even if done right, can get wrong-footed. A real indictment is if companies are unable to rebound / adjust. A 9-12 month period of problems that is overcome is not an indictment as such given the most severe global pandemic since 1918, if one is unable to get around it after more than that, then one can indict.

But reactions built on the idea that a system is indicted if there are simply delay wrinkles from this kind of event is a reaction that is more unrealistic magical thinking than rational systems analysis.

Newspapers here over in IKEA-land are reporting that supply problems are causing losses. IKEA is not dependent on chips, as are automakers, but demands are high and the factories are working. But it seems as if things just can't get here from there.

As evoked as I recall in that video, the expectations early in pandemic that demand would drop overall. Broad pandemic responses of liquidity provision and income support to households rather wrong-footed that in combination with online shopping. 30 years ago the results likely would have been rather different but with online sales demand didnot utterly collapse as it likely would have in 1995 for example.

Of course inventory build up will occur but there needs to be physical storage space and this takes time to build, put in place

Now the logistics investment side of my activities is very happy about this, although whether that is good broadly is an open question. Resiliency in deeper infrastructure is perhaps good. But that has a cost.

[Pencil]

I'm old enough to have vague political memories from the 60's. Mythologized is certainly the right word and the world was in no shape or form a better place for the whole global population.
Going backwards or even trying to emulate parts or the whole of that era would only bring back what we had then, endless small wars, coups and counter-coups, starvation, fear of malthusian over population. The imagined existential threats back then would've resulted in a far worse today if the doomsday preachers had been right. They were not. And in spite of what some say, a big part of that is 'globalization'.

[Iori_Yagami]

Interesting watch. :sherlock:
I think it's true noone cares until something bites them in the back, too. :ohdear:

OyC0E0ym2Ro
https://www.youtube.com/watch?v=OyC0E0ym2Ro

Are people supposed to believe that 'invisible hand will fix itself in the long term, meanwhile - COPE'. :astonished: