One thing that is not in short supply are stories about shortages.
The BBC leads with “Shortage problem: What’s the UK running low on and why?”, meanwhile The New Yorker has, “The Supply-Chain Mystery: Why, more than a year and a half into the pandemic, do strange shortages keep popping up in so many corners of American life?”, the Nikkei covers the angle in a different way, “Japan’s COVID emergency is over. Labor and chip shortages are not”, and last but not least of this small sample selection, The New York Time goes with “The World Is Still Short of Everything. Get Used to It“. Meanwhile, The Economist and Barron’s magazines both lead with a major feature on shortages.
The title of a leading article in a newspaper, or the front cover of a magazine typically reflect the consensus narrative. They tell us what we already believe to be true. But because we believe them to be true the chances of a reversal in the trend occurring appear very remote, even so ridiculous as to even contemplate the notion.
As I’ve highlighted before on Materials Risk, magazine front covers especially have a long history of proclaiming erroneous predictions at critical turning points in both economic activity and the markets. Far from being prescient, instead they tend to extrapolate current trends. Two of the most infamous come from The Economist and Business Week.
In March 1999 The Economist proclaimed the beginning of a new era of low oil prices with the cover “Drowning in oil”. Meanwhile, two decades earlier Business Week ran a cover story highlighting how high inflation is destroying the stock market. The cover title read, “The Death of Equities.” In both cases the magazines trend extrapolation came to an abrupt halt and went into reverse. It was a good time to buy oil in 1999 and a good time to buy equities in 1979.
In the same way that headlines tell us what we believe to be true, magazine covers and feature articles are often scheduled weeks or months in advance. For this to happen the trend has to have been in place for some time. The magazine cover can often be one step too far and so provide a contrarian signal to investors.
Shortages and end-of-world stories feed our appetite for doom mongering. But history should teach us never to doubt human ingenuity to solve a problem. For where there is a bottleneck, there is also opportunity, and therein lies a solution waiting to be implemented.
It’s not that the trend could reverse suddenly that should worry investors wedded to the thesis of continued and growing shortages, it’s that the price they are paying for that thesis to continue to be true is now too high. In short, even if there isn’t a reversal soon, the odds may now favour the short side of shortage.
Related article: Platinum prices to rebound as global chip crunch eases
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