At first, it was taken as a sign of relief, of strength and the return of good fortune. So many massive ships each overloaded with containers stacked skyward above their beams were headed to the West Coast, the ports there couldn’t handle the traffic. The boats, and the massive cargoes they carried, themselves packed into a sort of wondrously fascinating oddity.
Following the absolute doldrums of 2020, America was back! Not just back, but in such unmistakable fashion you could literally see its comeback parked off the coast of LA.
While cute at first, the pileup grew more serious and as the situation shifted the tone describing it would, too. Suddenly so much good news wasn’t purely great given how there didn’t appear any end in sight. Maybe not taken as strictly a macro focal point, yet as a growing nightmare for shippers there was the equally growing feeling this was more serious than simply the condensed initial wave of an awesome recovery.
It’s now nearly Thanksgiving in the US, with the Christmas retail season already well under way. The goods are still coming, the logjam as jammed as ever:
The queue, both at anchor and in a holding zone, rose to 83 ships as of late Friday [Nov 12], four more than Wednesday and topping the previous high of 81 set earlier in the week, according to officials who monitor marine traffic in San Pedro Bay. The average wait increased to 16.9 days, double the level from two months ago, according to L.A.’s Wabtec Port Optimizer.
This no longer represents a country showing its purchasing power might, nor can it be solely about port bottlenecks. What’s sitting afloat on all those 83 ships and who knows how many more in transit is inventory that someone somewhere is already trying to account for.
In the early days of the oddity, back when reflation was more palpable at the beginning of the year, such future inventory was looked upon as entirely untroubling. Stimulus. Vaccines. More stimulus. It all added up to expectations for 2022 piling on with even more good fortune.
No one cared about the pile, the word everyone was using was “shortages.”
More recently, things have changed. Operative words like “momentum”, “stagflation” (for those who still think this year’s “inflation” is inflation it isn’t), and the dreaded “growth scare.”
That last one, we’ve seen before, too many times. Just when the economy seems poised to break free, having been promised and guaranteed as thoroughly as it has been promised and guaranteed this year, it just all evaporates. Disappears without a trace into the spooky cemetery of the post-2008 graveyard currently containing the long-forgotten remains of four previous false dawns.
We (or I) have a name for this moment – it is the landmine.
The important thing to remember about these is what they mean or represent. It isn’t markets reacting to bad data picking up on some nebulous economic weakness that happened months ago, it is markets reacting to bad economic circumstances their participants are witnessing in real-time, the kind of negative developments only later reported by worsening data.
One good example of one was the big one in November/December 2008, when yields cratered even after several months of abundant bank reserves, an enormous TARP, and, just for the fun of it, a surging M2 “money” supply. All of those things, and still growth/inflation expectations for the intermediate and far-term future were being devastated on the inside of Adam Smith’s invisible hand.
The bond market wasn’t waiting for a payroll report or some negative statistic for Industrial Production to show it the massive economic disruption, that’s not what goes on here. On the contrary, it was trading on the more and more likely carnage which would be our global future out way past any economic data account – to the growing exclusion of all possibilities, beyond that point, of avoiding such a future fate.
The point of no macro return.
Another equally good example, eerily similar to today: 2018’s landmine.
For all of that year beforehand, shouts of exceeding confidence, inflation hysteria, and only more upcoming success. Jay Powell’s Fed turned “hawkish” and then more hawkish still absolutely drowning out (in the mainstream) increasing yet relatively shy warnings, the creaks and cracks, the hints and allegations of another very different possible outcome but one that could be dismissed and ignored since it hadn’t really pressed its case (unless you closely followed eurodollar futures).
Before the landmine, downside risk and negative pressures and potential. Following it, no longer risk or potential, now reality. That landmine just about over, on January 3, 2019, I wrote:
We’ve moved past warnings about future risks, though. May 29’s collateral call was a warning. The WTI curve flipping into contango was a warning. No more. This is a prediction about the short run and intermediate term.
Why? This from February 2019 summed it all up: “In a very short period of time, expectations went from somewhat plausibly imminent boom to possibly imminent global recession.”
Jay Powell’s FOMC actually did its last rate hike in December 2018, a rate hike during the thing while it was all going on. No surprise (to those paying attention and able to decode curves), therefore, mere weeks later, desperately attempting to make sense and digest what had just happened, the Fed’s hawkish streak abruptly turned chicken; in just three weeks, officials went from rate hike on surefire inflation to talking in public as if inflation was some puzzle and mystery beyond their collected ken.
The greatest boom in decades has turned out to be the most fragile boom ever; therefore, it wasn’t a boom.
This more than anything explains what happened in December, as well as all the escalating warnings leading up to it. It wasn’t financial market volatility so much as the curtain being pulled back exposing reality.
The landmine blew it all up. Bonds, situated on the real economy, inside the money system which makes it go (or stops it from going), the market had told you unequivocally exactly what was happening when it was happening.
Jay Powell and his rate hikes didn’t matter; following the landmine there weren’t any more. Instead rate cuts before August 2019 (and then September’s repo rumble). The Fed’s non-money monetary policy got blown up as collateral (pun intended) damage from the landmine, too.
Today might be one more good November day to remember these things. Jay Powell’s back up on his hawk flashing Bernanke’s taper. At least with Bernanke, though, the bond market gave him a tiny bit of leeway, if only six and a half months. This time, the only minor reflation in bonds was a long, long time ago back when the ports in Los Angeles were first clogged and the whole thing seemed fun.
The world hasn’t struck a landmine yet in 2021, but the small September/October rise in interest rates globally is starting to really seem like that was far more to do with September and October than even more huge CPIs and the like – including that last six point two.
Rates went a bit higher, while overall the curve flattened, in September and October 2018, as well.
This roughening of the outlook will be, more than it already has been, attributed to COVID; as if the bond market hadn’t last year realized (and factored) how case counts, hospitalizations, and government overreach weren’t all seasonal. Three years ago “they” had “trade wars.”
Instead, the actual risks only begin with what’s already floating around the Pacific. Should another landmine strike, we’ll know then, like the preceding ones, all those are no longer risks.