A Still taken from a Video by John Schreiber Photojournalist at CBS 2 / KCAL 9
Crime and security are a huge problem in many cities
Los Angeles is no exception. There has been much recent talk about inflation driving interest rates higher. Commentators do not separate inflation made from the creation of excess money. Higher prices due to inventory shortages happened at the same time. Monetary inflation can be permanent. Supply or demand shocks are often temporary.
Half of recent price increases are about to reverse
There are many reasons why prices go up. Parts can be in the wrong place. Thieves can be stealing deliveries, and companies must pay. Adding extra precautions or using more expensive delivery channels becomes required. Taxes and fees are making the net price to the customer higher.
Supply disruptions
We’ve had two years of parts supply disruptions from overseas manufacturers. The inability to get a key part, and requiring a company to “pay up” to get it and finish the product is not inflation. This is not a factor in the cost of your loan going up. Supply shortages usually lead to producers making a lot more of the needed parts or goods. Then, prices fall as supplies become available. We saw this starting at the end of 2021, and it has continued into 2022. Companies have double or triple ordered.
Inventory-led business cycle slowdown
Government stimulus was ever present over the last fourteen years. Many business owners forgot about when we had short business cycles. They are not focused on the creation of too much inventory supply. The old news in the media was about too little inventory for businesses due to supply chain problems. The first half of 2022 is shaping up to be a classic inventory-led business cycle slowdown. The Federal Reserve is withdrawing financial stimulus. This creates a deeper than normal inventory-led slowdown.
Expand your company’s liquidity
We have said the same thing since September; the economy is going to have too much inventory when supplies and deliveries normalize. Our guest next week, Andy Tomat, is going to talk about this problem. To repeat, this slowdown will be a gift for those prepared with available funds. Cash or unused credit lines make it easy to swoop in and buy someone’s excess inventory. Bank will force them to reduce or liquidate. Forewarned is fore-armed. We can get you funded, if you haven’t yet expanded your company’s liquidity. Winter is coming for some businesses. Your summer is coming if you have prepared. A sale is about to happen. Buy the dip.