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Friday Thoughts


I hope that you are able to enjoy these cooler mornings that’ve finally arrived. We took the kids to Ocean Lakes Family Campground last weekend for a Halloweekend, our first time. They had a blast. But, that chilly morning on Sunday morning threw everyone for a loop. Luckily, Nancy Lee was prepared and everyone had layers to put on so we could enjoy the festivities. 

Two weeks ago, I wrote about a number of challenges facing companies and the stock markets this fall. Inflation, rising prices, has been a persistent problem for a while now. Early on, much of the increase in prices was attributed to shortages of materials because of closures due to COVID. An example was the increase in lumber prices being attributed to shut downs of lumber mills. The Federal Reserve has said they feel that inflation was “transitory”, meaning that they think it won’t last very long. The problem is, know one really knows how to define transitory. I’ve been concerned that inflation will be with us for a while, due to labor issues and supply chain problems stemming from the labor issues. 

Over the last few months, the supply chain issues have grown considerably beyond my expectations. It’s a very complicated process, with many moving parts, to get raw materials to factories, manufactured, packaged, shipped to warehouses, then to stores, to finally arrive in your shopping cart. Companies have worked very hard to make this process as efficient as possible for many years. I remember learning about just-in-time inventory control in high school and college 30 years ago. 

That efficiency has a major draw back, though, we’re learning. Making things so efficient removed the redundancies in the supply chain. These redundancies allowed things to still flow when problems occurred. When there were inventories of parts on the shelves, there wasn’t the fear of not having enough parts to make our widgets tomorrow. 

There have been many theories about what is causing the supply chain bottlenecks. I’ve seen social media posts claiming that dock workers are intentionally slowing down the unloading of ships. I’ve heard folks claim that truck unions have limited the truck drivers in California to union drivers. I don’t believe either of those theories. Frankly, I don’t think the problem can be attributed to one issue. Like most catastrophes, this appears to be a series of problems stacked on top of each other. 

Jane Wells is CNBC’s main west coast reporter, based out of Los Angeles. She has done a great job covering the port and supply chain issues for months now. She was the first one I saw report on it at all. On October 8th, she wrote a column for her own website about the cargo ships waiting offshore to unload at the Ports of Los Angeles and Long Beach. She had just ridden out to the ships with the port police. There were 65 ships with an estimated 300,000 containers parked at sea. Today, just two weeks later, there are more than 100 ships and an estimated 500,000 containers sitting off of the coast of California. 

This isn’t just a LA/Long Beach issue. As I’m writing this, there are 24 container ships at anchor off of the coast of Savannah, up from 14 just two weeks ago. There are also ships waiting at anchor in New York and Norfolk to get a chance to unload their cargo. You can find where the ships are and where they’re going at marinetraffic.com. 

Last week, President Biden met with the heads of several shipping companies, manufacturers, and retailers to try to address the issues at the ports. The key announcement was the move to have the Port of Los Angeles operate 24 hours a day 7 days a week. It will likely not lead to any resolution of the issue. The Port of Long Beach was already operating 24/7. But, there isn’t anywhere for the containers to go when they get off of the ships. There aren’t enough truckers to drive them inland. 

The United States had a truck driver shortage before the pandemic hit. Now, with government stimulus money in their pockets, and after being stuck at home for months on end, American consumers are back to buying. Consumer sales has grown at a profound rate over the last year. All of that stuff needs to get moved. I saw one report this week that estimated we have a shortage of 80,000 truck drivers right now!

Thats not the only problem in the supply chain. Chicago is a major distribution hub for cargo containers. Jane Wells is reporting that many of the distribution centers in Chicago have either slowed or outright stopped accepting containers by rail. They don’t have enough space to accept any more. Many warehouses are facing staffing issues to unload the containers and distribute the contents into retail warehouses. 

And yet, this isn’t the end of the issues with our supply chain. Many of our products are made here, not having to travel over sea. Yet, supplies are running short on shelves. It’s hard to find packets of juice boxes, lunchables, and many frozen foods. If they don’t have to travel through a sea port, how do we explain this? It’s a labor issue. Meat processing plants, like Pilgrims in Sumter, are struggling to keep their workforce fully staffed. Some have thought it’s simply due to higher than normal unemployment insurance payments, but I think there’s more to it than that. 

For decades we have, as a society, promoted the idea of a four year education and desk job as the way to “make it” in America. Many children are told that they don’t want to have to do manual labor. The demeaning of working class Americans has taken its toll. Also, many of these labor intensive jobs haven’t seen the wage increases over time as many other jobs. The shutdowns induced to combat the COVID virus have caused many Americans to reevaluate what’s important to them. They’re no longer willing to work in a thankless job, regardless of what pay is associated with it. 

The evidence of this can be found in fast food restaurants, retailers, meat processors, manufacturers, and as mentioned earlier, warehouse workers and truck drivers. This is not something that can be fixed quickly or easily. And, no White House Executive Order will be able to impact it. It’s going to require a shift in the mindset of our society. We’re going to need to respect and celebrate hard work again. We’re going to have to pay these employees for their hard work. And, that will cause prices for goods and services to go up.

Inflation is not going to be as transient as the Federal Reserve thinks it is, in my opinion. I think these supply chain issues linger through 2022, if not longer. Wage pressure will remain an issue for quite a while. Ironically, the one thing that may resolve our supply chain issues is inflation, itself. As prices go up on the things we buy, we historically buy less. If Americans back off of the COVID shopping spree, we will see less need to carry all of this stuff across oceans and trains, trucks and warehouses. 

I’ve had several replies to what I wrote a few weeks ago asking what we can do to prepare for and handle inflation. The first thing is to be very aware of your monthly budget and make room for rising costs where you can. Many people have monthly auto drafts for streaming and other services. It’s usually a small amount, but they add up fast. Be aware of what you’re spending on food and energy. They seem to be the items most affected by rising prices at the moment and you may need to shift your shopping habits to accommodate the higher prices. 

When it comes to investing in an inflationary environment, be careful not to overreact. While high inflation can be difficult for some industries, others can do quite well. Many commodity based businesses, consumer staples, utilities and healthcare have faired okay when prices increased in the past, as they’re necessary expenditures, giving them pricing power. Also, commercial and industrial real estate have tended to do well. That’s not to say that you should load up on these and dump everything else. This is no suggestion to buy or sell any of your investments. This time could be different than the last time we saw an extended period of inflation, in the 1970s. Rather, you should stay well diversified and invested in a number fo sectors. 

If you would like to evaluate what you’re invested in, please feel free to call or e-mail. Here’s a link to my calendar, so you can schedule time to talk yourself. I’m more than happy to sit down and discuss your situation with you, as your situation will be very different than someone else reading this. 

Lastly, take a deep breath and try not to let the news get to you. I’ve seen several articles and columns saying that Christmas could be threatened by these supply chain issues. But my favorite meme right now says, “if you think that Christmas could be threatened by store shortages, you obviously don’t know the real reason we celebrate Christmas.” 

The county fair is in Sumter this week and we’re planning on taking the kids on Saturday. The weather is perfect right now for getting out and enjoying the fall. I hope that you can get out and take advantage of it as much as we plan on doing.