Reversion to the mean

"All of our lifestyles are about to change in a major way, but the vast majority of the population still does not understand what is coming.  Throughout our entire lives, we have always been able to depend on a couple of things.  There would always be cheap gasoline to fuel our vehicles and there would always be mountains of cheap food at the grocery store.  No matter who was in the White House and no matter what else was going on in the world, those two things always remained the same.  Unfortunately, those days are now over and they aren’t coming back." - M. Snyder

Sudden change isn't always a bad thing for everyone but the facts are clear: We're just getting started in this new reality which wasn't caused by Covid, Putin, Racism or anything other than years, no, decades of the Fed printing money from nothing and the excesses that it caused.

Now we begin the great unwind where the Federal Reserve who created, enabled and executed the plan now pulls the plug on purpose. This is where the market reasserts itself after years of being manipulated by newly printed dollars so everyone everywhere will soon experience a reversion to the mean.

What this means in practical terms for businesses and consumers remains to be seen but it's pretty easy to guess what comes next; remember all that inventory retailers were loading up on earlier this year?

"Almost half of respondents say that their inventory is higher and ordering is lower going forward — which firmly indicated an over-inventoried/de-stocking condition,” wrote Ravi Shanker, who is Morgan Stanley’s lead transportation equity analyst. We believe many will turn to aggressive discounting to solve their inventory problem which is likely to spark a ‘race to the bottom’ as companies attempt to cut prices faster than peers and move out as much inventory as possible. This dynamic will weigh heavily on margins and fuel the earnings slowdown we are predicting.”

I love how these "analysts" always act like they saw it coming the whole time until you realize this is Morgan Stanley/Chase who was saying the opposite six months ago.

The biggest problem business owners will have to deal with moving forward is inflation - it will continue to erode and disrupt spending patterns all the way down the supply daisy-chain:

"August 2022 Money Supply growth suggested no inflation relief. Amidst a continuing and intensifying 52-year peak flight to liquidity in August 2022, Basic Money Supply (Currency plus Demand Deposits) -- the best leading indicator of money-driven inflation -- surged anew to an unprecedented 122.1% of its pre-Pandemic level, up from July’s 114.4% reading, up 12.7% year-to-year in August from 10.4% in July, while the broader money measures M2 and M3 began to stagnate."

I don't expect any relief from inflation in fact, everything is pointing to it getting worse - the above quote shows that the main cause of inflation (Fed money printing) is continuing well above even pre-pandemic levels.

So much for the Fed's "fighting inflation" huh?

It's not going to be easy to navigate the coming months or even years perhaps - working capital from private lenders will offer some relief during this time as conventional banks go through the convulsions that reversion to the mean brings with it.