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Inflation: We Are Out of Everything

By Andrew Aziz  |  
Andrew's Newsletter  |  
Feb 9, 2022

Dear Traders,

I hope you are having a better day than I am. I got really chopped up at the Open and had to unfortunately take some heavy losses. You can watch the recap that Brian and I posted here.

Tomorrow is when the CPI figures for January will be released, and they will tell us much about inflation. These days, inflation is the most critical number for the financial markets. Analysts expect it to come in at around 7%, but regardless of the precise number, a very important question on people’s minds is: What is causing this record high inflation (the highest in several decades)?

Many believe stimulus packages and the Federal Reserve’s money printing is the cause for this inflation. They feel the government has given people significant sums of money to go out on a shopping spree with. But I wonder if that is true. After my run yesterday, I went to one of our local grocery stores and they were out of bananas and many of their shelves were half empty. Are people eating more? In addition, gas and energy prices are higher. Are people driving more than they were before the pandemic? Has it been a colder than usual winter thus far and people are turning up the heat in their homes?

Well, not really. The primary reason for inflation is because of disruptions in the supply chain. Many of the countries which did not provide “huge” stimulus packages to their citizens, such as in the EU, are also experiencing high inflation. Thus, blaming the printing of money for inflation is not completely accurate, although national debt can of course eventually lead to inflation.

A review of inflation during the pandemic demonstrates that cars are a large contributor to inflation numbers. The reasons are twofold. Firstly, when the pandemic struck, airlines were bailed out but automobile companies were not. They had to liquidate their fleets to survive, and now with the pandemic almost over (hopefully!), they have to buy those cars back to expand their fleets.

Chip shortage is also an issue, and the majority of car dealerships appear not to have much inventory. My own auto lease is expiring soon and I recently checked in with Lamborghini Vancouver to see if I could rent a sports car for a few days. None were available for the next 6 months. Even Range Rover did not have a car in stock to replace my current vehicle. The global chip shortage is definitely a factor.

Accordingly, I and many others are anxiously looking forward to the inflation numbers. There are solid indicators coming from shipping companies and from corporate earnings results that suggest the bottlenecks may soon start easing. A.P. Møller – Mærsk A/S, which handles almost 1/5 of global seaborne container traffic, has signaled that disruptions may be just months from ending. Makers of consumer staples and luxury goods are also anticipating improvements in 2022.

In other news, a couple in NYC who allegedly stole over $4.5 billion worth of Bitcoin in 2016 and enjoyed a lavish lifestyle were arrested by the FBI yesterday. I am amazed that when someone steals such an asset, why on earth they would choose NYC for their home. And, can you believe it, one of the suspects was only 25 years old at the time of the crime? Her name is Heather Morgan and her verified Twitter handle is @HeatherReyhan. What a world we are living in.

As always, you can reach out to me at [email protected] or simply reply to this email.

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To your success,