Friday, December 17, 2021

Morning Note: Yes, Prices Pass Through

Like we said in Part 2 of this year's year-end letter, we don't see inflation (nor commodity prices) rising in a straight line going forward. Nor does FedEx's Chief Operating Officer.

From yesterday's earnings announcement:

“we anticipate cost pressures from constrained labor markets to partially subside in the 2nd half of the fiscal year.”

And, yes, it's been a very tough slog to this point (and note "partially" in the quote above):

“The difficult labor market once again had the largest effect on our bottom line, representing an estimated $470 million in additional y/o/y costs.” Of this, $230mm was due to higher wage and purchase transportation rates and the balance lost to “network inefficiencies resulting from labor shortages.”

And, absolutely, that's getting passed through to the customer:

“Constrained capacity has continued to support a favorable pricing environment. We are maintaining a brisk pace for repricing contracts, ensuring a high surcharge and yield improvements.”

While the largest developed markets' central banks are profoundly unwilling to address inflation in a manner that would upset financial markets, that's not the case among much of the emerging world, including Latin America:

Mexico surprised markets yesterday with a .50% increase (.25% expected) in their benchmark interest rate. That follows a whopping 1.50% hike from Brazil on December 8th and 1.25% increase by Chile earlier this week.

Counterintuitively perhaps, that actually makes us all-the-more bullish on Latin America longer-term. Yes, it's a region whose equity markets, save for Mexico's, have suffered in 2021, but think about how these already-depressed markets would very likely respond as inflation "moderates" and they ease off of their respective money-tightening pedals. 

There's a deeper thesis behind our long-term optimism over Latin American equities that we'll share soon as we continue with our year-end message.

Asian equities struggled overnight, with 9 of the 16 markets we track closing lower (the losers declined notably more that the gainers gained).

Europe's a bloody mess this morning, with 18 of the 19 bourses we follow in the red, as I type.

US major averages are mixed to start the day: Dow down 327 points (0.92%), SP500 down 0.50%, SP500 Equal Weight down 0.30%, Nasdaq 100 up 0.06%, Nasdaq Comp up 0.12%, Russell 2000 up 0.98%.

The VIX sits at 22.13%, up 7.58%.

Oil futures are down 2.49%, gold's up 0.39%, silver's up 0.41%, copper futures are down 0.09% and the ag complex is down 0.20%.

The 10-year treasury is up (yield down) and the dollar is up 0.29%.

Led by AMD, MP (rare earth miner), metals miners, Mexican equities and SOXX (chip stocks) -- but dragged by KRBN (carbon credits), ALB (lithium miner), bank stocks, energy stocks and Indian equities -- our core portfolio is off 0.34% to start the day.

“One is never afraid of the unknown; one is afraid of the known coming to an end.”

--J. Krishnamurti

Have a great day!

No comments:

Post a Comment