Supply Chain Disruptions and Inflation | Are They News! or Noise?
Hey, I’m Chris Perras, Chief Investment Officer with Oak Harvest Financial Group. This is our investment team’s mid-week release when we examine a news item, headline, or story making the rounds from publicly available sources and ask, “Is it News or Noise?”
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So here we go..
I want to revisit a topic that was rampant on the news channels just a few short months ago. Think back a few months and remember how every time you turned on your TV you were hit with the story of “massive and unprecedented supply chain disruptions”. I kid you not, back in the early 4th quarter of 2021, our team here at Oak Harvest was getting daily inquiries and questions from clients and prospects wanting to address their fears of supply chain issues and their effects on everything we buy for the 4th quarter for Christmas. We had a few individuals who suggested we raise cash levels in their portfolios because of it. Thankfully we stuck to our data and processes as the S&P500 returned over +10% for the 4th quarter of 2021.
We walked these individuals through some of the detail of how component costs like “shipping costs” are very, very small part of the total cost of goods and services bought and sold in the USA. We discussed how this issue of bottlenecks had been going on already for over 18 months, but the TV financial news had finally started focusing on it, which meant we were most likely closer to the topics end not beginning.
We did our best to show them with data that their fears were largely unwarranted for their investments. We counseled them that the investment team at Oak Harvest was pretty confident that if our scientific brainpower could generate a Covid vaccine in about 6 months from scratch, the best business minds in America could likely figure out how to ease these bottlenecks over time, thus minimizing their longer term effects on supply and inflation.
And as it turns out, the TV financial news networks picked up and ran with this topic when? Right near its absolute top as a business and investment issue.
Here is a chart of data series we can follow in almost real-time. It’s called the supply chain disruption index. Yes viewers, this data actually exists. And what does this chart show you? It shows you that the peak momentum in supply disruptions was in early summer 2021 when the delta wave hit America, and although the index made a new high in late summer, its momentum peaked back then and has been crashing lower ever since.
You know what’s even more interesting to me on this chart? It’s the government inflation data series charted with the disruption index. As you can see from the chart, the US Core CPI inflation rate, which is the one quoted most widely in the news, has tracked this index with a lag by a few months. Recall, this is a number that many Federal Reserve watchers seem glued too. The implication for investors is that the current inflation fears being sounded by the financial news networks, is at a crescendo and inflation expectations are already beginning to peak and should ebb throughout the first half of 2022. In fact, just last week the ISM purchasing manufactures pricing index was released showing a significant slowdown in supplier price increases. That’s code for, we should be past the peak in supply constraints that have contributed to price inflation.
The lesson for viewers is this. The next time you feel like you are seeing the same news story, across multiple media channels, every time you turn on the TV or your computer. And you are feeling compelled to do something in your investments because of it. Instead, take a deep breath, turn off the TV or your computer, take a walk around the yard and think to yourself is this storyline new, or has it been going on for weeks, months, or even quarters. If the answer is it’s already been going on for quarters or longer, the news story and its financial effects are most likely already factored into your investment portfolio. You should then exhale, and think to yourself..this is most likely noise to my investments.
From the whole team at Oak Harvest, thank you for your support and trust throughout 2021, and we hope we can continue to be your partner and provide you with value added service in 2022.
And Viewers, feel free to give us a call here to speak to one of our advisors. Let us help you craft a financial plan that meets your retirement goals and needs first, and your greed’s second. Call us at (877) 896-0040 we are here to help you on your financial journey into and throughout your retirement years.
News or Noise..?
NOISE!
Disclaimer:
This content contains general information and express the views of Oak Harvest Investment Services. All data, articles, and information cited are believed to be reliable at the time of creation; however, Oak Harvest does not warrant any information contained herein to be correct, complete, accurate or timely.
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