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Who ate my donut?

Kids are known to blame their dogs for eating their homework! Looking at one of the photo forwarded by a friend, I can blame supply chain for "Who ate my Donut?"

The Supply Chain issues are seen everywhere - from corporate earnings to weird economics of used cars selling more than they were bought for. Supply chain issues are mentioned in every earning call multiple times - even by companies which are supposed to be all digital. The ports are backlogged with ships lined up for miles to get unloaded. What happened in the world priding itself "just-in-time" and efficient, all connected flat world. Pandemic threw a wrench in this supposedly well-oiled supply chain engine. 

When Pandemic hit in early 2020 across the world, after initial spurt of demand in consumables (remember toilet paper shortage?) demand for travel, autos etc vanished overnight including labor.  No wonder crude price went negative briefly. Governments pumped up trillions of $$ to keep their economies afloat and helped citizens with stimulus. Central banks reduced interest rates to zero and pumped up more money. All of this helped overcome pandemic induced shock. In early 2021, vaccination drives across the world helped reduce the impact of pandemic and people started becoming more comfortable getting out. The demand for everything suddenly jumped. People wanted to get out and spend their savings maybe because Pandemic also reiterated the belief that life can be so unpredictable! So why not live a life little? All of this caused economies to go from demand side shock to supply side shock. Companies were not ready for sudden spurt in demand. Due to complex nature of supply chain, even one small part (more likely some chip) would block production of iPhone, car, toys or clothing.

Policy holders were slow to recognize and act on this - latest CPI and PPI results clearly show that inflation is running hot. Airline tickets are costing 2-3 times of normal prices, hotel rooms are twice as costly, restaurants are at least 25-50% costly. Autos are selling above MSRP. And let's not even talk about housing prices..they are more bubbly than housing bubble of 2006-2008.

So how long would it continue? By many experts, it would continue well into 2022. So if you are looking for your summer vacation, start booking now. Looking at prices for 2021 holiday season, you may want to consider booking your vacation even for 2022 holiday season. When it comes to my Donut, hopefully some of my friends would apply their newly acquired baking skills to make artisan donuts!

/Shyam


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