Wednesday, June 2, 2021

Morning Note: Well, Acetone's Cheap -- And -- Top-Down Desperation

While, like I keep saying, getting the longer-term inflation story right will be key to investing success the next few years -- a most hotly debated story these days, mind you -- there's no debating that it's presently paying us a serious visit.

Here's from yesterday's release of the latest Institute for Supply Management Manufacturing Sector Survey:

Commodities Up in Price

Aluminum (12); Aluminum Products (2); Brass; Coatings (2); Copper (12); Copper Products (3); Corn; Corrugate (8); Corrugated Boxes (7); Diesel (5); Electrical Components (6); Electronic Components (6); Epoxy Resin; Fabricated Metal Components; Foam Products (3); Freight (7); High-Density Polyethylene (HDPE) (5); Hydrochloric Acid; Labor — Temporary; Linerboard; Low-Density Polyethylene; Lubricants (2); Lumber (11); Medium-Density Fiberboard (MDF); Natural Gas (2); Ocean Freight (6); Packaging Supplies (6); Paper; Paper Products (6); Plastic Containers; Plastic Resins (9); Polyethylene (4); Polyethylene Terephthalate (PET) Products; Polypropylene (11); Precious Metals (2); Resin-Based Products (4); Rubber Products (4); Semiconductors (4); Solvents; Soybean Products (8); Steel (10); Steel — Carbon (6); Steel — Cold Rolled (9); Steel — Galvanized; Steel — Hot Rolled (9); Steel — Scrap; Steel — Stainless (7); Steel Bars; Steel Drums; Steel Products (9); Stainless Steel Components; Wire Harnesses; Wood for Pallets (2); and Wood — Pallets (Finished Product) (6).

Commodities Down in Price


Commodities in Short Supply

Acrylates; Aluminum (2); Aluminum Products; Coatings; Corrugated Boxes (7); Electrical Components (8); Electronic Components (6); Foam Products (3); Labor — Temporary; Lumber (3); Medium-Density Fiberboard (MDF); Nylon Fiber (2); Ocean Freight (2); Plastic Containers; Plastic Products (4); Plastic Resins — Other (3); Polycarbonates; Polyethylene Terephthalate (PET) Products; Polypropylene (2); Polyvinyl Chloride (PVC) Resin; Printed Circuit Boards; Printed Circuit Board Assemblies; Semiconductors (6); Steel (6); Steel — Cold Rolled; Steel — Galvanized; Steel — Hot Rolled (7); Steel — Stainless (3); Steel Bars; Steel Products (4); Steel Tubing; and Wood — Pallets (2).

Note: The number of consecutive months the commodity is listed is indicated after each item.
  • “Supplier performance — deliveries, quality, it’s all suffering. Demand is high, and we are struggling to find employees to help us keep up.” [Computer & Electronic Products]
  • “Changes in currency exchange rates favorably contributed to our quarterly performance. Continued strong consumer demand for our high-quality products also provided increased sales.” [Chemical Products]
  • “Ongoing component shortages are driving dual sourcing and longer-term supply plans to be implemented.” [Transportation Equipment]
  • “Difficulty finding workers at the factory and warehouse level is not only impacting our production, but suppliers’ as well: Spot shortages and delays are common due to an inability to staff lines. Delays at the port continue to strain inventory levels.” [Food, Beverage & Tobacco Products]
  • “[A] lack of qualified candidates to fill both open office and shop positions is having a negative impact on production throughput. Challenges mounting for meeting delivery dates to customers due to material and services shortages and protracted lead times. This situation does not look to improve until possibly the fourth quarter of 2021 or beyond.” [Fabricated Metal Products]
  • “Labor shortages impacting internal and supplier production. Logistics performance is terrible.” [Electrical Equipment, Appliances & Components]
  • “Business is good, but labor and raw materials are becoming very problematic, driving increases in costs.” [Furniture & Related Products]
  • “The continued global supply chain tightness and raw material shortages from the Gulf (winter storms) make it less likely that any business can recover this year. Demand is strong, but what good is that if you cannot get the materials needed to produce your finished goods?” [Nonmetallic Mineral Products]
  • “Seeing a high demand and backlog of orders.” [Plastics & Rubber Products]
  • “Very busy, but still experiencing labor shortages.” [Primary Metals]

Asian equities traded mixed overnight, with 8 of the 16 markets we track closing lower.

Europe's generally green this morning, with 15 of the 19 bourses we follow trading up as I type. 

U.S. equities are mostly higher to start the day: Dow up 84 points (0.24%), SP500 up 0.18%, SP500 Equal Weight up 0.05%, Nasdaq 100 up 0.10%, Nasdaq Comp up 0.01%, Russell 2000 down 0.32%.

The VIX (SP500 implied volatility) is down 2.63%. VXN (Nasdaq 100 i.v.) is down 1.54%.

Oil futures are up 0.58%, gold's up 0.26%, silver's up 0.41%, copper futures are down 0.77% and the ag complex is up 0.26%. 

The 10-year treasury is up (yield down) and the dollar is up 0.17%.

Led by energy stocks, uranium miners, Mexican equities, Asia-pac equities and Indian equities -- but dragged by wind stocks, solar stocks, base metals futures, bank stocks and materials stocks -- our core mix is up 0.17% to start the session.

Here's a teaser for this week's main message; coming your way later today:

"In a nutshell, valuations, system-wide debt, interest rates and geopolitics are for the most part stacked against the stock market. Ironically, on the other hand, in today's stock market-centric, unrepentant money-printing world, one can virtually declare that the worse the setup the less likely the crash. I.e., the worse the setup, the more the top-down desperation to keep market bubbles afloat.

In other words, in the words of economists C. Reinhardt and K. Rogoff in their seminal book This Time is Different:
"Bubbles are far more dangerous when they are fueled by debt"
Yes, policymakers full-well understand this, which has them breaking with all convention, and, not to mention, Federal Reserve Act law, to, again, keep bubbles afloat. Sadly, that means making them bigger in the process.

Frankly, at this point inflation is their only way out... Though they'll deny it to their graves, for to acknowledging it would pressure them to fight it -- which would of course burst the debt bubble...  I.e., they're stuck"

Have a great day!

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