Well, we know now why Warren Buffett and Charlie Munger keep stock piling cash. Munger said today at the Sohn conference in Australia, “I consider this era an even crazier era than the dotcom era.”
The price of a 40 foot shipping container from Shanghai to LA has fallen to the lowest level since July at $9,698, off the September peak of $12,424 but still more than double the $4,000 level seen in April. Keep in mind though, the holiday window has closed for those looking to get something from China as there is ZERO chance of getting something from there by ship by Christmas. That window really ended in September and that coincided with the peak in this shipping cost. Where it settles out pricing wise in January and February will be a great tell about how much is more structural (5 shipping companies now control about 60% of the market) and how much just cyclical and which we’ll give back.
Highlighting this is seen in the price of air cargo from Shanghai to North America as this is the ONLY way you’ll get stuff by Christmas from China. The last read on Monday saw a new high and is up 15% from the previous peak in September.
WCI Shanghai to LA Container Price
Shanghai to North America Air Cargo Index
With respect to dry bulk shipping prices, they are really just following the price of iron ore as seen in this chart over the past year.
IRON ORE in white, BALTIC DRY INDEX in orange
Ahead of the US ISM services PMI, we saw some more overseas. The China private sector focused Caixin November services index slipped to 52.1 from 53.8 and that was below the estimate of 53. Caixin is blaming the fall on Covid but “firms were strongly upbeat regarding the 12 month outlook for activity, and continued to increase their staffing levels.” With respect to pricing, “Higher labor, raw materials and energy costs all drove a sharper rise in input costs, however, which contributed to a further increase in output charges.” In terms of growth rates, China has seen its best days and when looking at 2022 much will depend on how they land the residential real estate plane. That said, it’s an economic diversification that must take place and China’s savings rate at around 30% helps to cushion any major disruptions. The Shanghai comp was up .9% but the H share index was lower by .6% with weakness in tech.
Singapore’s PMI fell to 52 from 52.3 while Hong Kong’s rose to 52.6 from 50.8. India’s held at a high level at 58.1 but fell from 58.4. Markit said this with Singapore, “Demand and growth continued to improve, while foreign demand surged, which had been a positive sign for Singapore. Issues of supply constraints remained prevalent, however. Anecdotal evidence suggested that purchasing activity and staffing levels were affected by Covid cases. As a result, delivery times lengthened and backlogged work accumulated.”
The Eurozone November services PMI was revised down to 55.9 from the initial read of 56.6 but that is still up from 54.6 in October but below the 56.4 print in September. Markit said “new orders from foreign clients rose, albeit only marginally…capacity pressures continued to build, while firms hired additional staff to support the provision of their services.” On inflation, “prices data showed accelerated increases in both output charges and input costs. In both cases, rates of inflation reached new survey highs.”
The November UK services PMI was left little changed at 58.5 vs the 1st print of 58.6. Markit said “Surging price pressures have done little to dent business and consumer spending across the UK economy…New order growth hit a 5 month high in November, job creation remained strong, and backlogs of work built up due to supply issues.”
All of these figures and survey’s do not really capture the impact of Omicron, most likely right now just on leisure/hospitality. That said, we know Austria and some others have taken steps to the Covid flare up before the Omicron news.
ECB president Lagarde spoke today and repeated her temporary talk on inflation. “I see an inflation profile that looks like a hump and a hump eventually declines. We are firmly of the view, and I’m confident, that inflation will decline in 2022.” There wasn’t much a market response as bond yields, the euro and stocks in the region are little changed. Mario Draghi really left Christine Lagarde in an almost impossible situation in dealing with inflation.