Microchips, timber, grains,... The list of products and commodities affected by a global supply shortage progresses as we move further into the post-COVID era. Moreover, the expansionary monetary policy fuels the inflationary trend and accentuates the shortage. Thus, having storage capacities became a fundamental hedging tool for both corporations and governments. But is the market price still relevant when storage wars break out?
In the early months of the new coronavirus pandemic, major central banks enacted aggressive monetary policies to limit any potential market crash that could lead to a 2008 scenario. Avoiding a massive dip in the stock market provides clear benefits in the short term for economies dominated by the financial sector. Nevertheless, it could generate price distortions, disruptions in supply-demand equilibrium and ultimately, market dislocation in the long term.
Markets are thriving, and Wall Street throws the green indicators in investors’ faces whenever they are overwhelmed by uneasy feelings. The global chip shortage, which is currently disrupting the automotive and consumer electronic industries, should trigger an alarm. Western economies printed enough paper, luxury that China, the world-leading supplier of goods, does not have. If China, along with other economies providing commodities and products, decides to corner their respective markets, all printed money, and inflated stock prices become irrelevant. One can have all the money, but there will not be many things to buy.
This scenario assumes that at one point, corporations and governments will start to increase their stocks of various goods considered critical. In a context where the value of money is zero, the actual dividends are paid by holding stock of physical products. This invisible dividend is also known as convenience yield, denoting the benefit or premium associated with owning an underlying product or physical good rather than the associated derivative security or financial contract.
Companies like Amazon understood this foreseeable paradigm shift and invested in storage infrastructures and supply chain capacities. Storage wars are real, and in each strategic physical market, there is the incentive to hold a significant position to manipulate its price. The manipulation can go as far as where there is no market, and available supply is null. Such a phenomenon is observed in the automotive industry, whereas all major manufacturers have shut down their operations for an undefined period.
The bottom line is that when storage becomes strategic, whatever stock market prices become irrelevant. Thus, a 1929 stock market crash is not an unrealistic scenario.
Storage is important. Whether it's cushions you only use outside in the summer, or blankets that only come out in the winter, you've always got to think of where to store them. Anthea Turner, former English television presenter
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This content is for informational purposes only and does not constitute financial advice or a recommendation to buy or sell. Investments carry risks, including the potential loss of capital. Past performance is not indicative of future results. Before making investment decisions, consider your financial objectives or consult a qualified financial advisor.
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