So let's talk Supply chains When our supply chains actually going to lead to any form of meaningful disinflation? or is it possible that we're just going to continue to see inflation, which is the last thing that we want, we want to see supply chain disinflation. We want to see that Supply chains are loosening and becoming easier. So that way we could finally see pricing pressures go away. So what's actually happening statistically? Let's look at the charts are we are basically things getting worse or Supply chains telling us that it's time to buckle down for a double dip crash because we're getting a Resurgence of inflation.

Well, let's see what Supply chains have for us by reporting over to UBS which has a fantastic piece. It's about nine pages long out. Uh, just uh within the last few days here. and it is.

Global Financial Economic Perspectives on supply chain Bottom Next, All right, let's take a look at some of the most Salient points here. First, Supply chain bottleneck stress is now close to the lowest level it has been in 10 years. Our national Global Supply Chain stress indicator has fallen negative 0.66 standard deviations below medium with the exception of one month in 2019. That's the lowest level of overall supply chain disruption that we have seen since 2013, which interestingly 2013.

Oh wow, that actually is really interesting. So 2013, Oh man. I didn't even make that connection until I just I Just read that again. 2013 was a really interesting year because see, we came off the real estate market dropping from 2005 to about the end of 2011..

the real estate market started its recovery in around November of 2011 and continued for about a year through 2012.. it wasn't until interest rates fell and all of a sudden we got this massive lack of inventory at the end of 2012.. basically 2012 was like a year of absorbing excess inventory. we went from for example, in my city, 400 homes on the market to like, uh, 80 homes on the market.

Which is weird because that's about how many properties we have on the market right now. But anyway, once we got to about 80 homes on the market and that Supply wasn't actually coming on the market anymore, all of a sudden, prices jumped about 20 percent in two months. And what's really interesting is Robert Schiller Who's created the case? Shiller index over at Princeton He suggests that the vast majority of household wealth effects do not come from stocks you don't. According to his research, you don't spend more because you have more money in stocks.

You spend more money when you feel richer because of real estate. Now, that's actually really interesting because if the real estate market did indeed have that sort of Bounce in 2013, which we could look back and see that statistically, it did, Is it possible then we actually had supply chain disruptions due to a peak in consumption in 2013. And that's why now we're looking at the lowest level of supply chain disruption since 2013, which was basically potentially where we saw an inflection point. In other words, going from like crap.

it's 2012, nobody's buying anything to in 2013. Oh, everyone's Rich again and it's like that marked the bottom. and then you saw that that sort of surge in spending Again, That's really interesting because I have the belief that the Federal Reserve and this is just my opinion that the Federal Reserve is basically saying hey, we need to crush housing to get people to stop spending just so you can see that graphically And then I want to keep going just to make sure I'm explaining this as clearly as possible. If Supply chains are becoming looser, looser, and looser and then they inflect here.

In let's let's just say May of 2013. Okay, pick like a middle month or June or whatever, right? That means basically all of a sudden people started spending again. That's what I'm aligning with. potentially that real estate market.

Uh, because that's sort of Mark to bottom. Now now we might be in a position where you know Supply chains got really tight during Covid, but now they fall in again to the lowest levels that we saw since then. That's not saying we're necessarily at another inflection point, it's just saying we've now hit low levels that we haven't seen in a very long period of time of supply chain stress. Uh, that's that's very good.

It's a very good thing. So anyway, if supply chain stress. was a source of inflationary pressure, could an overshoot in the other direction? Uh, as they're saying here, press disinflationary pressure and this is where what they're saying is: Look, we're seeing costs of almost everything in Supply chains, Whether it's Freight or container ships or inventory ratios all potentially rotate, not just to the level of normalcy, but potentially overshooting to the level of disinflation. Now, this is wild because a lot of the mainstream narrative today the bear narrative today is oh no.

Inflation is going to last longer than we expect. And that may be true. It may take some time for this supply chain disinflation to actually work its way through the economy and for us to see rapid disinflation. But think about what's already disinflating, you're already seeing a massive inflection in the availability of workers, which is a massive cause for wage inflation.

You're already seeing rents plummeting in terms of uh, of what we expect for leading indicators for CPI disinflation on Housing Services So those are the two most sticky forms of of inflation, right? housing and then of course wage inflation which leads to Services inflation. But then of course you still have that concern about supply chain nightmares and this continues to disinflate even more as time goes on. So you're really creating anchor after anchor after anchor. The the only bear like the Bear case, in my opinion, is not saying oh yeah, Inflation's actually going to last very long.

It's just a matter of how long does it take right? how long is that lag to actually see this come through? But some of these charts are actually really striking. So here's a chart of sort of your supply chain stress and you I drew those yellow bars at the bottom just to drag over where we sit at the median and average. Right now, you can see we're obviously substantially off some of the coveted highs and even below some other levels. But look at this delivery time indices, but well, everywhere.

and the regional United States Via the Institute for Supply Chain Management via the United Kingdom Global measures Emerging Market measures doesn't matter almost all of them Negative, negative, negative, negative, negative in delivery times, orders, and inventory ratios. In other words, you're getting larger inventory buildups than you actually have of orders. Ah That's also very interesting. Uh, then what do we have over here? Uh, shipping costs plummeting.

And this shipping cost level in in the measure of a standard deviation coming down three to four percent via standard deviations is pretty remarkable. And then the empty container ratio is also a negative. And this is all data as of the last three months of indicators here. So you're really seeing a plummeting of supply chain stress now.

A lot of people and I was sort of pounding the table saying No this is ridiculous. It's not going to happen a lot of people were making this argument that oh well, as soon as as soon as don't worry the moment China reopens, you're going to see a massive boost of supply chain stress again. And sort of, you know, in addition to obviously research, one of my base arguments was wait wait wait wait wait wait wait wait wait. Like China's been open for 40 years and we've been suffering from disinflation.

Like chill, right? Uh, and so what do you have here? Oh, look at this. China's end to Covet Zero had no aggregate impact on Port activity. You don't even see a spike in a supply chain stress from Covid or the coveted reopening in China Nothing. Absolutely nothing.

And yeah, China's activity recovered in early February But that activity was very, very short-lived In terms of some kind of surge. You can see that right here. The red line represents the Consumption and Services index, and you can really see the lockdown era over here and over here. right? Like these bottom sections, those are are really your lock down arrows right? Here, You had sort of the brief reopening until we got, you know, basically crushed by Delta again in China.

Uh, and then you have your sort of renewed lockdowns over here thanks to Omicron And then here's your temporary reopening. Okay, so you get this boost, but now you're basically just I Mean, if you draw a line across where we sit right now, and this is plummeting right? this level of economic measure is plummeting. Draw a line across I mean we're just basically at normalized 2019 levels, if anything, slightly below 2019 levels of consumption and Services indices for China So you're just. you're just not seeing this supply chain drama.

uh, despite you know all of the these sort of Click bait that exists around oh no supply chain nightmares. and I think by the way it it is on on the viewer, it's it's on you to make sure that when you're reading because that's just the world that we're in right now. You know we can kick and screen dream about as much as we want. but I think it's on you the viewer to make sure that if you're reading like tweets which is basically like reading headlines or you're reading headlines for stories or videos or whatever it is, it's on you to make sure you're really going deep into the context.

It's one of the reasons I Personally, as much as I I like using Twitter just to kind of get an idea of sort of like okay well what are some of the headlines that are going on Twitter I think is is personally very very I found toxic for for Humanity in this and this is not to bag on Elon Musk but it's because it seems to drive that Sensational headline in this. But only that right? it's very difficult to actually get deep perspective on Twitter because we're sort of programmed to only see the headlines on Twitter And and then there's no way to really deep dive on something. and I think it's very dangerous because you know we see people get canceled over a little out of context Clips or headlines and that. And it's very sad because generally in the context of of deeper knowledge, you know something that we can achieve either through larger writing in books or deep dive articles which nobody has time to read anyway or what? I like obviously, which is why this is one of my favorite forms of communication is is a video that you could play back on 2x right? I think uh, you know I Think that's a phenomenal way to make sure you're getting all of the perspective Beyond just the headlines and and I Think really, that onus falls upon, uh, the viewer or the reader to make sure you're going to that deeper level of perspective.

Most people won't do that, but I appreciate you for doing that. so keep it up I Think that's the way to ultimately build wealth the more perspective you have. So here's a sort of gap between export volume for Asian goods and US Goods That sounds extremely complicated. Let me translate this to: English Basically, the red line says we bought more crap from China than normal.

Okay, so the blue little dotted line says hey, look, that's normal Trend red line which exploded there during the pandemic is basically saying yo, we buy lots of stuff from China and and that red line is finally falling back to the prey pandemic trend line. We're not quite there yet, but we're getting dang close to matching that pre-pandemic trend line which is absolutely fantastic. Then over here, you could again see a falling trade volumes rapidly pushing freight costs lower I Specifically want to drag you to this or call your attention to the left chart over here. It really shows you that yes, while some levels are still elevated like China to Europe In fact, if I just go ahead and draw a line of uh, you know we'll go ahead and pick I'm trying to pick a color here, they don't have.

Let's pick Pink So If I drag the pink across, you could see the pink across is still slightly elevated and even the red to some degree is still slightly elevated over the pre-pandemic era. But but you can clearly see the trend that China to the U.S East Coast China to the U.S West Coast Basically plummeted to pre-pandemic levels. You still get a little work to get the the global index down on the China to Europe index down. But I mean the cost for Freight have absolutely plummeted.

Not only that, uh, but it's worth noting that even though we're seeing Goods disinflation, U.S Core Goods spending. So in other words, you and I spending on crap is still elevated. And that's probably because as Bank of America told us and I'm sorry if it sounds redundant, but it's very, very important as a statistic that Bank of America tells us that people stole people who had two and a half to five thousand dollars in their bank account pre-pandemic now have 12.8 thousand dollars. that's you know, on the low end, that's like five times as much money.

On the high end, that's two and a half times as much money. So of course people are still spending money. You know I mean there's a reason American Express has people are spending through this recession is because we got more. You know everybody's just a little bit richer than they were before.

uh, and so unfortunately that does create some lags and how quickly uh, disinflation is going to happen. But uh, I mean based on let me just be a crystal clear here based on what I've seen with Wages, earnings calls Supply chains, inflation is transitory like it's just gonna be a lot longer and more painful than previously thought. And that's not what we want to hear. You know, stronger and longer lasting.

You know that's something Jerome might want to hear in certain cases, but in in terms of his job, it's not something he wants to hear. Uh, slower momentum and good spending is mirrored in the decline in manufacturing order. So yes, slower momentum basically means we're having less growth in spending, but actual spending is still elevated above trend reduce demand. however.

Uh, in in general, like sort of a a slowing of that increase of the rate of spending is helping clear inventory backlogs and inventory time. Uh, inventory. Uh, inventory backlogs and uh, delivery times. Let me make that very clear.

If you're Apple and you go from having demand for 1 million iPhones to 2 million iPhones you you have. you experience a whole lot of change, right? That's a lot of change. Very, very fast. That inflection that rapid change in demand that is very inflationary Because that's basically where all the goods producers are like.

Okay, you you all of a sudden want to double how many chips you're ordering. All right, we're raising prices, then Apple raises prices, and then people pay more. You know? And and that's how you get inflation. But once Apple's accustomed to 2 million and the momentum goes from doubling to basically being flat, that's a lot easier to deal with from an inflationary point of view than these rapid changes.

Uh, and so as long as we're stable. The interesting thing is, you could be stable at a higher level, but you're not actually creating rapid deflation because it's not like demands all of a sudden going from now 2 million iPhones back to one just as an example, right? That's totally a made-up figure, but it's just a way to show it's that it's those rapid changes that usually create rapid inflation or deflation. It's not necessarily, uh, that the fact that demand is going up or spending is going up like, as long as things move it relatively constant. Pace Businesses can slowly adapt.

Shipping cues outside of ports have mostly disappeared, which is absolutely fantastic. We want to hear that we don't want uh, there to be uh, large wait times and containers sitting outside ports which we had during the pandemic because mostly, well, that ends up sending the signal of is uh oh uh. You know people have to wait longer for their goods. and if people have to wait longer for their goods and potentially their services, well then people raise prices because you know.

Well, because uh, Builders or suppliers are able to raise prices. You know, goods and service providers Merchants basically are able to raise prices because people will demand for for a quicker product or quicker service. but those pressures are really disappearing. Uh, here you could see chart wise shipping cues.

94 Reduction in containers in the port for more than nine days and that's for the Port of Long Beach Port of Long Los Angeles You're sitting at a 92 percent reduction over here. Global Semiconductor Production Now this is really interesting for the chips, obviously. I Think many of you know that I believe that chips have substance actually High Pricing Power I'm a big fan of believing and investing in what I consider pricing power stocks. obviously that's not personalized Financial Advice for you.

And while I do provide a lot of perspective on on finances whether that's here on the channel or in my programs on building your wealth where we have a Tesla investor day flash sale going on, uh, basically we'll expire that on investor day, which is tomorrow. You know you can learn a lot of perspective. But but the point is I Strongly believe semiconductors have massive pricing power. Unfortunately, semiconductor stocks have had a very, very hard 2022 specifically because of this return to Trend right here now that we're back at Trend I Actually believe the Bottom's already behind us on chips.

And that's why I really started increasing my investments into chips right around the end of November and December where I Kind of thought we had relatively Peak pain for uh for the chip sectors. Uh, so of course we still have in some cases, inventory gluts, most specifically in memory chips. So I'm saying if even within the chip space I'm somewhat staying away uh, from uh, from trips inventory for that reason. uh, in the memory sector.

So how does this all fit together well I Think it's worth noting that if the supply chain pressures that were really so convincing to people that oh, this is going to cause the most rapid inflation we've seen in in 40 years, which It ultimately did. if that supply chain impetus and pressure is gone, then maybe we. If we're you know, very bearish on inflation going forward. Maybe it's important that we revise our expectations and and yes, realize that okay, things might take a little bit longer than expected to normalize again.

but so far, everything we can look at in terms of leading indicators again, whether it's uh, you know the availability of Labor or or Supply chains is moving in the direction of Rapid disinflation. Again though, that rapid disinflation might take until 2024 or 25 only the grand scheme of things. looking back from 20 20, 30 maybe will we be able to look back and go oh well duh you guys printed funny any money all over the place and he saw a rise and I fall. well duh right? So it'll be a while before we can actually say oh duh.

Inflation was transitory, but but again, the the data is reiterating rapid disinflation and I would I Would strongly caution against being terribly bearish here in 2023. I'm not suggesting YOLO margin and you know, don't have a cash buffer, but any more than than a 10 cash buffer again, not personalized Financial Advice I Have to say that because as soon as people start hearing like allocations, that people people might misconstrue that potentially I don't think you do but but some random might uh and and that would be that would be very, very bad to do. this is not per I Don't know what your personal financial situation is, but for me I think any more than really a 10 cash allocation right now is is is a substantial risk of a very big opportunistic opportunity cost mask unless of course you're saving for Real Estate right? Look, if you're saving for Real Estate That's okay. You know it's still in in many regards after price adjustments have occurred.

Uh, you know there's there's very little inventory I Think you have to wait for sort of a rise in inventory to really confirm a bottom. Maybe that Ryzen inventory will never come? It doesn't really so much matter. But what matters is that you know you want to be cautious of potentially buying now and then and then having that leg down still ahead of you, right? I'd rather wait a little bit and have confirmation that that light down is behind me. uh, specifically in real estate.

Uh, anyway, where I think the recovery will be a little slower given how long it'll take for rates to come down. But we'll see, we shall see. this is not a real estate video. this is a supply chain disinflation video.

so hopefully that was, um, insightful to you.