November 2021
Market Update

For those of us out there with a few miles on the sneakers, remember a little chant we recited as children called The Farmer in the Dell?  It started out with the rat taking the cheese … then the cat took the rat… and so on up the chain did this all go until the farmer took the wife, “hi, ho, the merry-o!”  It was about the relationship of one thing leading to the other – not unlike the situation we find ourselves in today with the so-named “supply chain crisis”.  Let me explain.

At some point last week we had more than 90 container ships off of the Long Beach Harbor.  Combined with the Port of Los Angeles and known as the “San Pedro Bay Port Complex”, this freight hub has been the largest container port in the Western Hemisphere for over two decades.  Normally, we see fewer than 10 container ships in port.  Clearly a log jam, so where is the hold-up?  Not enough cranes and crane operators to unload the ships?

There are 82 ship-to-shore container cranes now working 24 hours a day to unload these ships.  One out of every 9 jobs in southern California is connected to the Port activities, over 3 million people across the country.  Expanding the ability of the docks to operate around the clock – if fully staffed – could increase the number of containers off-loaded by 3,500 per month.  In August the total number of containers off-loaded was 950,000.  So even if fully staffed and running around the clock, we will still only see a 3.5% improvement in through-put?  Ask the dock workers what will help and they point out that they could double the amount they are unloading but they have nowhere to put these containers because there simply isn’t enough warehouse space.  In fact, the port has resorted to “storing” containers on the streets of Long Beach!

Well, we aren’t going to build more warehouses overnight, but why are all the warehouses so packed?  Where are the trucks to pick up the merchandise out of the warehouses to get to the Walmarts and Costcos?  We have a couple of problems here.  One is regulatory changes that California itself implemented that are now causing long-term truckers to exit the industry, but the other is pretty basic:  too many trucks are sitting idle because they are waiting for repair parts or tires … that are sitting in the very containers we started with.  Hi, ho the not-so-merry-o.

Then of course we have demand for more ‘stuff’, the consequence of government stimulus that has driven demand year-over-year up by 14%, which is significant.  The more we buy, the more they make, the more that ships, the more that waits.  The more that waits, the higher the prices.

There is no overnight “fix” for this, so we need to stop expecting one.  As we have said so often, high prices are the cure for high prices; eventually we stop buying because the value isn’t there, demand and prices will drop.  It will just take some time. 

From a stock market perspective the expectation should be:

• Probably more muted GDP growth in the 4th quarter of 2021, but 2021 for the year should still be above 5%...which is much better than the sub 3% growth we had over the last decade, and really nothing short of a miracle when you consider what the pandemic did to the world.

• Volatility as the Federal Reserve attempts to read these tea leaves and determine when to stop buying bonds (tapering) and more significantly, when to start raising interest rates.

• Volatility as companies translate missed sales opportunities due to supply chain issues, and suffer shrinking margins due to higher wages and material costs.

In your portfolios here, we continue to be fully invested in stocks and most of our bonds.  The sudden jump in yields (in anticipation of the tapering by the Federal Reserve) did move our high yield municipal bond position to cash and we will have to see how the bond market responds following their upcoming meeting.

As we come into the end of the year, we do want to make you aware of another “shortage” that could impact us all and that is the shortage of time.  TD Ameritrade has made us aware that their backlog of work is such that they will require any year-end transactions be received no later than November 15th in order to ensure timely processing.  This means Required Minimum Distributions and ROTH Conversions should be completed as soon as possible to avoid missed deadlines or penalties!

Finally, let us tell you that there is no shortage here of appreciation for the faith you and your family have shown in us.   May you have a very blessed Thanksgiving! 

If you have questions, please contact us.

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To download the November 2021 Newsletter: CLICK HERE