🌍 Supply-chain crunch tips the US into 1970s-style stagflation next year

“So you have this pile up, I would say, of regulations ultimately, I'd say with COVID as the origin that have now caused this supply chain crisis. And unless it gets fixed, it could absolutely cause a 1970 style stagflation type recession next year.”

“I think it's coming. I don't think it's a short-term blip. And I think that we are in a period that will resemble the late 70s. ... And I think that, you know, you kind of want to be risk off and not own risk assets. ... I mean, look, I think you got a year to 18 months to kind of clean this stuff up”

“a tray full of champagne glasses on a boat in rough seas, at any point, we could trip and everything comes crashing down”

“You know, I mean, I think that's the way the equation balances. It's not like the world's going to end.”

“The psychology of this could be could be self-fulfilling as well, because what's going to happen is you're going to have everybody raise prices because it's now become an escalation. ... And then people are going to say, you know what, fuck it, I'll just drive this one for two more years. That's going to cause stagnation.”

“the last three major drawdowns have been the dot-com crash, then the financial crisis and then the COVID crash. All of them had true systemic risk that caused kind of, there's all these ripple effects and secondary effects. For all you guys, it seems to me that this time what's going on is a devaluation that doesn't have systemic risk attached to it.”

“the purchasing power that arises when the inflation is higher than what those things are going up at indicates economic recession underlying that inflationary bubble ... have we pumped enough money into trigger economic growth that we can come to balance where the growth can outpace the inflation? And we're not there.”

“I actually think there's a lot of strength in the economy right now. It's not all negative. ... I actually think there'd be a massive relief rally, and the economy would take off like a rocket next year. ... And we could let things have more of a soft landing, as opposed to the sudden austerity, which is whipsawing the economy.”

“And so I think there's actually like a much greater risk now of the economy going to recession this year because of the Fed's overreaction this week.”

“we are dealing with balancing the risks of inflation against the risk of recession. I think that is fundamental. And right now, all the statements have been so hawkish that the markets have been just flowing red now for months. And I think the balance of risk is starting to make recession possible in a way that didn't seem possible two, three months ago.”

“So we are in a really complicated moment. And I think the risk is that there is an overreaction to incomplete data and we plunge the US economy into a recession. And I just think that that has to be really thoughtfully measured. And guys, we've seen this in 2018-19.”

“And that doesn't necessarily mean that the economy is at risk. It means that there are valuation bubbles that are going to burst. They're going to decline. And no interest rate policy is going to change that”

“And so I think that the risk of recession now is much higher than it was even a month ago. Now, you know, it's going to be hard to know. So basically, I think what we're saying is it's going to be very hard for the Fed to engineer a soft landing here, where we don't trigger a recession in the process of stopping inflation.”

“So the real risk to the economy, in my opinion, right now, is when and how we're going to work our way through the supply chain issues. And it is so complex and there's a myriad of problems. And it is a global problem that it's really unclear how this is going to play out over the next six months. ... businesses that you didn't realize and didn't expect are going to get hit with supply chain problems are suddenly going to say, guess what, our revenue is off by 20, 30 percent”

“And the reason I'm less worried is when you actually talk to the companies that are spending enormous amounts of money on CapEx, they've actually guided to the fact that by the end of this year and the beginning of next year, most of these things will be worked out. It's indigestion. I think we're dealing with a six to nine month issue of having turned things off and are now rapidly trying to turn things back on. ... But I do think it will work itself out faster than people expect personally.”

“And so the result will actually show up down the road when all of a sudden they miss revenue three, four quarters down the road. And that's why I've been saying for a couple of shows now that the biggest thing I'm concerned about is when the revenue shortfalls start to hit the companies that are dependent on these supply chains. ... And just this quarter with the quarterly earnings, we're now seeing that the company yesterday that reported called Ingredion, their big food ingredients company, and they just reported how supply chain problems have now backed up to affect. And the stock was down like 10%, 11% yesterday.”

“That's an enormous capital problem that these companies now all of a sudden will face, right? So like, the next step beyond all of the supply chain issues could be, and I think Sacks has been talking about this a lot, like a pretty bad recession if these companies have all this inventory and they don't know how to get working capital.”

“And, you know, we know that inflation is a huge problem. The Fed now is raising rates or projecting raising rates very quickly, which is creating. ... It's a very blunt instrument. It could cause a downturn or recession. So that's the big problem.”

“we've been talking on the show for the last, I'd say, a couple of months about balancing the risk of recession versus the risk of inflation. Inflation, I think, has gotten slightly worse. The print went from, the last print was like 7.1% now to 7.5%. ... But the risk of recession, I think, is increasing because what's keeping this economy going is the consumer. And if the consumer sentiment now all of a sudden is tanking, and people feel poor because of inflation, I just, you know, now the risks are starting to become more balanced.”

“the University of Michigan Consumer Sentiment was released, I think it was today this morning, and it shows exactly what he's saying, which is that, you know, consumers' propensity and confidence in the economy has been falling off a cliff. You know, the month over month change was almost, it was down 8.2%. The year over year change is down almost 20%. ... But I think, Sacks, you're right, on the margin, I think the risk is towards a recession, because people don't see this.”

“If you look back over the last 30 or 40 or 50 years and you look at every single period of when there has been a recession, what's interesting to note is that it's not always been the case that the price of energy has risen by 50 percent in a recession. But it is always the case that when energy prices spike by 50 percent, we enter a recession. We will contract as an economy.”

“Yeah, look, we're talking about I'm talking about capital and energy and food. And some combination of those things are going to cause some serious deleterious effects on people and on markets.”

“we have all the risks of recession, we definitely are seeing a slowdown in the economy right now. And I think if this war continues and we don't get the spring planning and things keep deteriorating, I think we're headed for a very serious recession in this country. I think we'll go from slowdown to recession.”

“But like we're hurting ourselves far more than we realize”

“Look at what's going on in the world with energy prices. We've never had oil over $120 and not gone into a recession. We're facing a global slowdown. That will have big implications for inflation, big implications for rates.”

“how can the United States be under so much inflationary pressure, where China is effectively telling you that we are in a contraction and a recessionary period. And so if that's where China is, there's a risk that we may already be there or entering that.”

“This war, the longer it drags on, the longer it basically can spin out of control and become something worse that sucks us in. ... The longer it creates the risk of basically causing a recession in the United States.”

“We're definitely going into a slowdown. And whether it becomes a recession is to be determined. I think there's a very good chance because we already were headed for a slowdown because of interest rate increases, because of inflation. ... we could end up with something like a stack, the 1970s style, stack inflation, where we continue to see inflation with the slowing economy. ... Historically, it's met when the yield curve inverts. There's been a better than two thirds chance for recession at some point in the next year and greater than 98% chance for recession at some point in the next two years.”

“That's why they spend less money. And that's why there's recession. ... the rippling effects of the rate of inflation are decreased spending, and there isn't enough time for, you know, the new job creation engine to catch up. ... without a stimulus effect, you're in trouble. That's really the situation we're in. And that's what, you know, can kind of cause these stagflationary effects to drag on.”

“It turns out that it's not as correlated as one thinks. ... That's actually not showing a recession at all. In fact, that shows a very healthy ascent ... It has never really been the case that two's 10s inverts while the forward spread stays up and you have a recession.”

“So if we do have a recession, and it seems implausible to me that we would have negative growth for two quarters.”

“And there's still risks of inflation and recession in the US. And I think if we are in a recession later this year, I think a lot of people in the US will be asking what was this all for?”

“the savings boom is largely over. Personal savings rate fell to 6.2% in March, the lowest since 2013 And so what does that mean? Well, it means that the setup is there for us to sort of really contract what we are able to spend as a society. So I think now the odds even push further in this direction that we could have more quarters of negative GDP.”

“So that doesn't get credited on the GDP counter because those sales didn't close that quarter. And as we saw with Amazon recently and others and Apple just said that they're expecting, I think, close to a $10 billion hit this quarter because of supply chain issues. ... That doesn't mean that we're not going to have a recession because, you know, when I when I'm not able to spend money on Apple, Apple spending less on their suppliers, they're spending less on their suppliers. So there is a trickling effect of capital flows and the recessionary effect may be hit.”

“I tweeted in February, Hey, anyone notice that we've just entered a recession? And I got dunked on by all the professional economists ... the data just came out negative 1.5% economic growth in Q1. So what I wrote at the time was exactly right.”

“The market knew in December, the market knew in November that the recession was coming.”

“Separately, jobless claims are now starting to tick up, which means that companies are beginning to affect layoffs because they feel this pressure. So now you're going to see an unemployment rate that starts to go up.”

“I think like recession now is this inevitable. To Chamath's point, you can't have 14% of global wealth wiped out practically overnight and not have that translate into a big recession.”

“That's where we have a problem with stagflation and where we are inevitably going to run into a recession.”

“We know that those prices are not sustainable and we have the bond market telling us the same thing. That's why I don't think you should believe the hyperinflation narrative.”

“And if they don't, then we end up with like a chronic sort of stagflationary situation, where you get lower growth and inflation persists. So it's a bunch of bad options right now. ... And this is a bunch of bad options. I think, you know, we are going to have a recession.”

“All roads, I think lead to lower equity prices. ... And so if all of a sudden you have some recessionary forces or prices go up and earnings don't, you'll have a contagion in the debt markets. You could have a contagion in the commodity market. So we're dealing with some really tough boundary conditions.”

“the rate at which we pull the money out, which has had to be really, really fast over the last few weeks, can cause a recession. And that's the biggest concern right now is, will that actually trigger a massive recession or not that everyone's watching?”

“Jerome Powell just said, I will tank the economy in order to beat inflation. He just said it in the Wall Street Journal. ... I think you're going to see eight and nine percent inflation prints for at least the next three or four months minimum.”

“So I don't see how we get out of this bear market until you get clarity and resolution of inflation and rates, number one, slow down to recession, number two, and basically this war in Europe, number three.”

“I don't like the term quote recession as if it's some absolute negative thing. ... negative GDP growth coming off of inflated GDP doesn't feel to me as systemically challenging to the economy as some other circumstance”

“But all of those roads unfortunately lead to the same conclusion, which is like, you know, equities get really under pressure. There is no scenario where there's a bid to equities. Why would you buy something that has lower earnings in the future?”

“I mean, what I just described would be a soft landing. I just am skeptical there's going to be a soft landing because of what Chamath is saying, which is this is a multi-part problem. ... And until we fix the supply side, I don't think that merely reducing demand is going to get us out of this.”

“the majority of Americans are facing this really critical budget crisis, where their personal spending levels are now exceeding their income levels, and there's a critical need for credit and for personal debt and spending to go down. And that's what's going to drive significant risk in the next couple of months and quarters and years”

“So I have no doubt that the Fed can stop inflation. I think the question is how much pain are they going to have to inflict? How high do rates have to go? And how long do we live through this sort of stagflationary period?”

“Listen, we're at the beginning of a recession. It might turn out we might have a bounce in Q3. This might be more of a double dip. I suspect that's what it will be. But we know the cause of this. The cause of this recession is inflation.”

“Yeah, you're right. So the commodity prices are reflecting expectations that the economy is slowing down and maybe in a recession.”

“So, inflation is still high, the jobs picture is good. We're technically in a recession.”

“and things are going to go down inevitably, but I don't think that this should be deemed that there's something fundamentally negative about the US economy.”

“So in the province of Shishuan in China, they actually lost power because so much of the power is driven by hydroelectric plants. So streams and water flow has slowed down and stopped. As a result, there's less power. As a result, the factories are being shut down. As a result, key components for manufacturing in the computing industry and kind of mechanical goods are not being produced at the rate that they were being produced before that has a ripple effect in the supply chain, similar to what we saw in COVID.”

“Now, this FedEx executive is saying we're headed for a global recession. So it seems to me that the economic news is just pretty grim here. And we're in stagflation. The Fed has to keep raising interest rates at the same time that we have persistent high chronic inflation.”

“So I think, Sacks, you are right that we will be there because you can only bring rates up so high until you break things.”

“But either way, I think the Fed's interest rates are doing their job and less packages are being shipped because people are Chamath, you would think, spending less money. And that was the whole point of this exercise was to slow the economy down.”