'Everything Is Happening Everywhere All At Once'

Rabobank: Everything Is Happening Everywhere All At Once

Michael Every of Rabobank

Everything is happening everywhere all at once – yet key markets are failing to capture it or aren’t explaining the second or third order implications where they are.

However, oil is at $113 and rising despite the slowdown. US retail gasoline just hit a new record high in nominal terms, and even in real terms is not far off the peaks seen around the Arab Spring- or the Iranian Revolution. Those in the know underline that even if more oil were pumped, it would not help because the problem is the structural lack of capacity at refineries, which will take a long, long time to reverse. That feeds into the price of almost *everything*.

With a lag, into food – which also leads into the price of everything else given demand is to a large degree inelastic. Unsurprisingly, we hear more warnings of food shortages. This apparently means little to a Wall Street which worries most about which low-carb lunch option to have delivered by the Western equivalent of India’s dabbawalas, as it dresses up the Dickensian DM-meet-EM-in-the-middle I was predicting back in the early 2000s as techno-progress. Until they need to find infant formula, that is.

Likewise, as covered in our ‘In Deep Ship’ report, US supply chains remain structurally hampered. Truckers, who face soaring diesel prices, are seeing freight demand slump along with the slowing economy: if this carries on, many will go to the wall, removing a vital cog from the logistics machine when it needs to ramp up again. Rail is overloaded and underfunded. And, as we mentioned in 2021 after listening to people in the relevant industry rather than Wall Street, the International Longshoremen’s Association President, representing the port union on the US East and Gulf coasts, just said that he will “fight tooth and nail” against further marine terminal automation," adding, “Automation does two things: it makes the companies rich and the longshore workers unemployed.” In short, expect strikes to shut down US ports again, meaning nobody gets any of the goods they need regardless of price.

One can look at all of this and say that it just ‘means recession’, and so lower bond yields. Yet that is not seeing everything that is happening everywhere all at once.

Sri Lanka is officially down to its last day of petrol. It was already going hungry – now it will be immobile. Angry people were already burning down politicians’ houses. Now they seem to be attacking anyone looking wealthy. 

‘Oh, that’s just Sri Lanka,’ some say. True. But Iran is seeing food protests; so is Tajikistan. Significantly lower bond yields, when oil and food prices are rising and demand is largely inelastic, and “demand destruction” means hunger, is not something that ‘just happens’ like it could when commodity prices were low. Especially not when it also implies a collapse in the stock market and in housing and soaring unemployment to boot. 

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