The broken chain – could the supply crunch be worse than the oil crunch of the 1970s
Anyone that has bought a new or used car in the last year has faced higher prices and long wait times for delivery. This is all because of the very small but essential semiconductor, which is in short supply worldwide.
The shortage first deemed to be a short-term supply bottleneck is now expected to run well into next year. Automakers have had to reduce output by an estimated 11 million vehicles this year and 8.5 in 2022. This is costing automakers an estimated $400 billion in revenue.
The main catalyst for the shortage has been Covid-19 related. The global shutdowns caused production disruptions and other supply disruptions. Meanwhile automakers slashed their orders for semiconductors as global demand for cars was slowing, the demand for electronics was skyrocketing. This pushed production towards electronics instead of auto. Demand was stronger in the summer of 2020 than anticipated, which against already lower inventories deepened the shortage.
Demand Will Continue to Exceed Supply
And now this week Apple’s share price dropped because the company announced it expects to make 10 million fewer iPhones than planned.
According to Bloomberg…
The technology giant is one of the world’s largest chip buyers and sets the annual rhythm for the electronics supply chain. However, even with strong buying power, Apple is grappling with the same supply disruptions that have wreaked havoc on industries around the world.
Major chipmakers have warned that demand will continue to outpace supply throughout the next year and potentially beyond.
We added the bolding to emphasize that this supply change issue is not a short-term problem. Moreover, it is an ongoing one that is not expected to be resolved anytime soon. Bloomberg goes on to report that
There are signs the chip crunch is getting worse. Lead times in the industry – the gap between putting in a semiconductor order and taking delivery – rose for the ninth month in a row to an average of 21.7 weeks in September
Beware the Holiday Rush!
It is not just new autos and iPhones that now have multi-year high wait times for delivery – shortage affects hundreds of industries and thousands of products. Any product that has or relies on anything with electronics is affected in some way.
Add on to the semiconductor shortage the shipping crisis.
Global supply-chain delays are so severe that some of the biggest U.S. retailers have resorted to an extreme – and expensive – tactic to try to stock shelves this holiday season: They are chartering their own cargo ships to import goods … The chartered ships are smaller than those that companies like Maersk operate and move just a small slice of total imports, the executives said. Ships that can hold around 1,000 containers are on average nearly twice as expensive as the cost of moving cargo on a typical 20,000-container vessel, according to freight forwarders
By chartering smaller vessels these retailers are creating a workaround. For example, by moving from the most congested ports, such as Los Angeles and Long Beach where the backup reached up to 275 ships by late September, to ports that the large ships are unable to use.
Why should gold and silver investors care about the supply shortages?
The answer to this question is threefold:
Gold and to a lesser extent silver are safe-haven assets. As these crises become more extreme investors turn to gold, which leads to the second point.
Gold and silver serve as portfolio diversifiers. Most importantly, as supply chain issues wreak havoc on equity markets gold and silver hold their value and provide stability in the portfolio.
Gold and silver provide an inflation hedge for the rising prices that will ensue as the supply chain crunch continues. Certainly as discussed above the large retailers are finding solutions to the shipping problem by chartering. However, at a higher cost which will be passed on to the consumer.
Almost every good we consume is either fully made elsewhere or has commodity or manufactured components that are produced elsewhere. Therefore, they have to be shipped, trucked, or railed to our location for purchase. This translates to – most goods are in some way affected by the growing supply crunch.
Most importantly, the best thing about physical gold and silver is that they rely upon no one for validity. Zero counterparty risk is often used to describe the precious metals. That is because company management teams or governments can take away your purchasing power by giving it to themselves. Therefore, it is time now to note that there is zero supply chain risk with gold you hold.
From The Trading Desk
Gold Offer Singapore – We currently have a limited number of Gold Britannia’s for Storage in Singapore at Spot plus 2.5%. Please contact our trading desk to avail of this offer.
Gold Philharmonics start from Spot plus 4.5%.
Excellent stock and availability on all Gold Coins and bars with 1oz bars at a very competitive 3.75% over Spot.
Silver coins are now available for delivery or storage in Ireland and the EU. These are at the lowest premium in the market. Starting as low as Spot plus 32% for Silver Britannia’s
Silver Britannia’s for UK delivery or storage are still available. These are at the lowest premium in the market also (which includes VAT at 20%). These can now be purchased online.
Silver 100oz and 1000oz bars are also available VAT free in Zurich. Starting at 8% for the 1000oz bars and 12.5% for the 100oz bars.
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If you have not had chance to watch the interview published yesterday on GoldCore TV with Gareth Soloway, it is definitely worth a watch.
Gold and Silver had a nice move higher yesterday on the back of the CPI numbers released. As a result it took out short term resistance. The USD gave back some of its recent gains. In addition the US 10 & 30 year eased back slightly helping Gold move higher.
Current monthly bond purchases continue at $120 Billion. However, with growth in the US on target and inflationary pressures everywhere, the Fed realise that the market does not need further liquidity. But have they left it too late & how can they turn it off ? Will they play to the market and reduce the purchases down slightly to avoid a ‘Taper Tantrum’ ?
We should get the answer one way or the other soon and possibly even by November.
Each day, we analyze emotions and sentiments from different sources and crunch them into one simple number: The Fear & Greed Index for Bitcoin and other large cryptocurrencies.
This post by Lorimer Wilson, Managing Editor of munKNEE.com is an edited ([ ]) and abridged (…) version of an article by Alternative.me for the sake of clarity and length to ensure a fast and easy read.
<img src=”https://alternative.me/crypto/fear-and-greed-index.png” alt=”Latest Crypto Fear & Greed Index” />
Why Measure Fear and Greed?
The crypto market behaviour is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear Of Missing Out). Also, people often sell their coins in irrational reaction of seeing red numbers. With our Fear and Greed Index, we try to save you from your own emotional overreactions. There are two simple assumptions:
Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
When Investors are getting too greedy, that means the market is due for a correction.
Therefore, we analyze the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”. See below for further information on our data sources.
We are gathering data from the five following sources. Each data point is valued the same as the day before in order to visualize a meaningful progress in sentiment change of the crypto market…
1. Volatility (25 %)
We’re measuring the current volatility and max. drawdowns of bitcoin and compare it with the corresponding average values of the last 30 days and 90 days. We argue that an unusual rise in volatility is a sign of a fearful market.
2. Market Momentum/Volume (25%)
Also, we’re measuring the current volume and market momentum (again in comparison with the last 30/90 day average values) and put those two values together. Generally, when we see high buying volumes in a positive market on a daily basis, we conclude that the market acts overly greedy / too bullish.
3. Social Media (15%)
While our reddit sentiment analysis is still not in the live index (we’re still experimenting some market-related key words in the text processing algorithm), our twitter analysis is running. There, we gather and count posts on various hashtags for each coin (publicly, we show only those for Bitcoin) and check how fast and how many interactions they receive in certain time frames). A unusual high interaction rate results in a grown public interest in the coin and in our eyes, corresponds to a greedy market behaviour.
4. Dominance (10%)
The dominance of a coin resembles the market cap share of the whole crypto market. Especially for Bitcoin, we think that a rise in Bitcoin dominance is caused by a fear of (and thus a reduction of) too speculative alt-coin investments, since Bitcoin is becoming more and more the safe haven of crypto. On the other side, when Bitcoin dominance shrinks, people are getting more greedy by investing in more risky alt-coins, dreaming of their chance in the next big bull run. By analyzing the dominance for a coin other than Bitcoin, you could argue the other way round, since more interest in an alt-coin may conclude a bullish/greedy behaviour for that specific coin.
5. Trends (10%)
We pull Google Trends data for various Bitcoin related search queries and crunch those numbers, especially the change of search volumes as well as recommended other currently popular searches. For example, if you check Google Trends for “Bitcoin”, you can’t get much information from the search volume. Currently, you can see that there is a +1,550% rise of the query “bitcoin price manipulation“ in the box of related search queries (as of 05/29/2018). This is clearly a sign of fear in the market, and we use that for our index.
Surveys (15%) currently paused
Together with strawpoll.com (disclaimer: we own this site, too), quite a large public polling platform, we’re conducting weekly crypto polls and ask people how they see the market. Usually, we’re seeing 2,000 – 3,000 votes on each poll, so we do get a picture of the sentiment of a group of crypto investors. We don’t give those results too much attention, but it was quite useful in the beginning of our studies. You can see some recent results here.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
A futures-based exchange-traded funds based on Bitcoin called the ProShares Bitcoin Strategy ETF (BITO) started yesterday and I believe it will be a major factor in making the process to invest in Bitcoins considerably easier, safer, and more convenient. Here are 5 reasons why:
While our year-end price target for Bitcoin is $100,000, we believe that Bitcoin prices will soar much, much higher in the long run – like 5X higher. That’s right, we think Bitcoin is going to $500,000 and the rationale is simple.
Trading in bitcoin has become a very profitable way to generate income, and whether you’re just starting out, or have been at it for a while, there are some tips that can enhance your bitcoin trading strategy.
While there are risks, cryptocurrencies can reap huge rewards for those who make the right investment decisions. In this blog post, we discuss how to invest in cryptocurrency and what you need to know if you want to get involved!
Gold and Crypto are both expected to embark on their next bull run and, a disadvantage to owning one asset is often an advantage of owning the other. Therefore, we believe both deserve a place in your portfolio for at least insurance purposes.
It would be wise for bitcoin traders to use any kind of hedge that they can find and over the past few months, one such hedge has been, ironically, gold.
A Few Last Words:
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Gold prices are once again on the rise, as investors around the globe prepare for the elevated risk of inflation that is anything but transitory.
December gold futures hit a high of more than $1810 per ounce on Friday, marking an increase of about 2.5% during the week— the fastest weekly gain since the beginning of spring. The bullion’s popularity has accelerated over the past month, as investors look to hedge against growing inflation risks despite assurance from central banks and policymakers that price pressures will abate soon.
Moreover, gold prices are also getting a boost from a declining dollar index, as the US dollar continues to weaken against other major currencies, most notably the euro, yen, and the yuan.
Indeed, the latest rally suggests that an increased number of investors prefer “hard” assets such as precious metals to counter a rising inflationary environment. As a result, some industry leaders are expecting the rally to continue, and likely coincide with price accelerations across other commodities, such as natural gas and aluminum.
Former chiefs of Canadian-based gold mining company GoldCorp Inc., Rob McEwen and David Garofalo, recently told Bloomberg that the inflationary phenomenon currently witnessed around the globe will not be as transient as central banks’ official figures suggest. As investors begin to take into account a more permanent state of price pressures, the price of gold could hit $3,000 per ounce, they said.
“I’m talking about months. The reaction tends to be immediate and violent when it does happen. That’s why I’m quite confident that gold will achieve $3,000 an ounce in months not years,” explained Garofalo, arguing that gold makes a better hedge against inflation than cryptocurrencies, due to the precious metal’s long-standing history as a universal asset.
Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
Hard to know where this is all going to lead. But one thing is clear– we have added a very interesting new chapter in the history of money.
In my course on the financial system, I’ve had to update the material to include cryptocurrencies and central bank digital currencies (CBDC). Here’s some pictures of cryptocurrencies.
Figure 1: Price of bitcoin (blue), ethereum (brown), litecoin (green), in USD, in logs, 2017M01=0. NBER defined recession dates shaded gray. Source: FRED, NBER.
These three particular cryptocurrencies have experienced proportionately enormous appreciations. Taking bitcoin as an example, it’s clear cryptocurrency returns have been enormous compared to even the S&P 500.
Figure 2: Price of bitcoin in USD (blue), London 3pm price of gold in USD/oz. (brown), S&P 500 index (green), in logs, 2017M01=0. NBER defined recession dates shaded gray. Source: FRED, NBER.
However, the month-on-month volatility of bitcoin is enormous, even dwarfing that of gold, as shown in Figure 3.
Figure 3: Month-on-month growth rate of the price of bitcoin in USD (blue), of London 3pm price of gold in USD/oz. (brown), of S&P 500 index (green), all calculated as log-differences. NBER defined recession dates shaded gray. Source: FRED, NBER.
The standard deviation of month-on-month (not annualized) changes was 2.8% and 3.9% for gold and S&P 500 respectively. For bitcoin, it’s 21.6% monthly. That means that bitcoin does not fulfill the third function of money, namely a store of value, very well.
Given this volatility, one has to wonder why one would want to hold bitcoin. In his post, Jim asks:
Why does the stuff have value in the first place? The answer is that it would be very helpful to many buyers and sellers of real goods and services if they were able to pay for transactions in this way. We can think of any form of money as an asset that provides liquidity services, which refers to the tangible benefit to its holder coming from the ability of the asset to facilitate certain transactions. The value of money, that is, the value of real stuff you’d be willing to give up to hold money, can be thought of as the present value of the stream of these future liquidity services.
Bitcoin has two potential advantages over credit cards for providing such liquidity services. First, the supporting network only needs to verify that the private code is valid, which is less costly than verifying that you are indeed the rightful owner of a credit card and are ultimately going to deliver good funds. …
Second, Bitcoins are relatively more anonymous than credit cards. In this respect, they enjoy some of the same advantages as cash….
One can formalize this argument by referring to the equation for pricing assets:
D stands for dividends when P refers to a stock price. In our context, D is the liquidity services provided by bitcoin (which can be small for those who don’t need to evade restrictions), P the price of bitcoin. If one can rule out bubbles, then a bitcoin price is equal to the present discounted value of liquidity services. However, there’s no reason to impose this assumption.
Then the price of bitcoin is moved primarily by new information that changes the information set used for forecasting the future price — in other words, the speculative motive is central.
The expected future price is in this interpretation driven by new information about the liquidity services provided by bitcoin. New regulatory measures — either tightening or loosening — should be associated with bitcoin price movements. Figure 4 highlights the role of such regulatory events, as well as the discount rate.
Figure 4: Price of bitcoin in USD (blue, left log scale), TIPS 5 year yield, in % (brown, right scale). NBER defined recession dates shaded gray. Source: FRED, NBER.
Chinese measures to rein in the use of bitcoin negatively impacted prices. On the other hand increasing acceptance of the use of bitcoin — as in the establishment of a bitcoin futures ETF — enhanced the liquidity services provided by bitcoin.
What does the future herald for the price of bitcoin? It depends on the balance between increasing regulations that limit the desirability of bitcoin as a pseudonymous means of transactions and the increasing usefulness of bitcoin as an asset class. The establishment of central bank digital currencies (CBDCs) will also certainly alter the relative desirability of cryptocurrencies.
For more, see Charles Engel’s paper on the subject. Eswar Prasad devotes considerable discussion of cryptocurrencies in his new, comprehensive assessment of the digital revolution in finance, The Future of Money.