The Magazine Cover Indicator
The covers of business and economic magazines are often wrong. The Economist it is wrong two times out of three when it makes a money related prediction. A great contrarian indicator. This isn’t new. Citigroup did a study in 2016 on magazine covers. The theory is once something is uncovered by the magazine class it is too late.
Perhaps the greatest example is the BusinessWeek cover of August 1979.
There was a bull market coming, though it didn’t start for a couple of years.
The authors were tough on the Economist, a paper I am fond. of. I wrote for them as a stringer for eight years during the 1980s, and for BusinessWeek in the 1970s
This is a recent cover The Economist.
Maybe we should be buying European stocks.
The Economist fought back. “The analysts—the cheeky devils—decided to apply the test to The Economist’s covers,” they wrote in October of 2016.”Perhaps the best-known was our “Drowning in oil” cover of February 1999, which preceded a great commodity bull market.”
The Economist said it gets a lot of things right. Example:
“A more intriguing example is the January 1999 issue “Why internet shares will fall to earth”. Was that wrong or right? Yes, 12 months later the internet sector was still riding high. But the peak came in March 2000 and many internet shares subsequently fell 80-90%; our timing wasn’t right but our overall call was.”
I’m not cancelling my subscription.
Rich Widow Nicked for Owning Forbidden Art
Ancient artworks valued at $24-million were taken from the New York residence of Shelby White, art collector and trustee of the Metropolitan Museum of Art.
The Art Newspaper reported: “The antiquities collector Shelby White has been revealed as the former owner of a number of looted artefacts recently returned to Turkey, including a life-size bronze statue of the Roman Emperor Lucius Verus, below.
Her collection `constitutes evidence of criminal possession’. It never embarrassed her it seems. In 1990 she and her late husband, Leon Levy, who made his dough on Wall Street, exhibited more than 200 pieces at the Metropolitan Museum in Glories of the Past: Ancient Art from the Shelby White and Leon Levy Collection.
Two professors outed the collection, saying 93% of it could not be proven to be legal. It’s a no-no to loot art, or even own art from illegal digs.
Embracing electric abandoning Diesel in France
Here is what sold in France last month. BEV is the latest acronym for Battery powered Electric cars, as opposed to hybrid electric cars.
Just Because it’s Beautiful
The Wall Street Journal ran this picture of the Lamborghini 400 GT 2+2 driven by Beatle Paul McCartney in the 1960’s. The story is about how the Italian car maker plans to go electric. Depressing that it is now owned by Volkswagen.
The Stuff Needed to Produce Green Energy
You can see there is a lot of material needed to make and maintain five green energy sources. Nuclear wins. It is a mystery to me why there aren’t more giant geothermal plants. A few of my neighbours heat and cool with.
Who Eats Fish
Essay of the Week
Shortages are still with us.
Shortages
It started, or at least we really began to notice shortages, when that huge container ship, the Evergreen, got stuck sideways in the Suez Canal in March of 2021.
It delayed all kinds of things, in particular computer chips and electronics coming from Taiwan, China and other Asian countries. Like everything in the shipping world, it is complicated: The Evergreen is owned by a Japanese company registered in Panama but is chartered and operated by a shipping company in Taiwan.
Taiwan is the computer chip manufacturing capital of the world; it makes 65 percent of the world's semiconductors and almost 90 percent of the advanced chips. How the world ever let that happen probably has a lot to do with dumb greed.
If China takes over Taiwan, as it says it wants to, then this shortage crisis will pale by comparison. That's another story.
About a year after the Evergreen got stuck, Vladimir Putin invaded Ukraine. This has caused shortages that are more life-threatening than a shortage of car parts, and it spreads far away from the battlefield. Africa, in particular, has been hit by shortages of grain. Russia and Ukraine supply 28% of globally traded wheat, 29% of the barley, 15% of the corn and 75% of the sunflower oil. Earlier this year, India banned wheat exports because of a drought.
That, combined with non-stop war and drought in East Africa, has caused a humanitarian crisis in Somalia.
The grain shortage means a spike in prices that poorer countries can't afford. There are a quarter of a billion people facing famine. Households in sub-Saharan Africa spend forty percent of their money on food.
Europe itself is in deep trouble as the war creates shortages people never dreamed of. See Economist cover above.
We all know what the shortage of natural gas will do in Europe this winter. If it gets really cold, and it hasn't so far, people will freeze to death. The cost of heating is through the roof. Germany is using coal to make electricity; a story in the Globe and Mail the other day about a man in Berlin using a 19th-century coal heater in his apartment.
Diesel used to cost less than gasoline. Not anymore. Diesel runs tractors, which is just one reason for the rising cost of food. Tractor trailers use diesel, and those trucks deliver fruit and vegetables from California and Mexico. But we are lucky compared to Europe.
Complicating this for Europeans is something called AdBlue. When the ad blue light comes on in a diesel vehicle—and I drive one- the car won't move
.The warning has happened to me. It tells you that you can start the car ten times and then it won’t move.
AdBlue is a mixture of urea and deionized water that neutralizes nitric-oxide emissions from diesel engines. Urea is made from natural gas; that isn't a problem in North America, but it is a big problem in Europe.
Three-quarters of all goods in the European Union move by truck. Four million of the six million trucks in Europe will come to a dead stop a couple of kilometres after they run out of AdBlue. The Economist says supermarket shelves will be empty within days if that happens. Ambulances and fire engines won't run. The price of AdBlue, converted to Canadian dollars, has gone from 24 cents a litre in August of 2021 to a dollar seventy a litre today.
Europeans may be faced with a stark choice: let delivery trucks operate or heat your house, apartment or factory. This hasn't happened yet, but it is looming over Europe.
Back to the Suez Canal.
It wasn't just that one ship. It delayed the passage of 369 ships, disrupting almost ten billion dollars US of world trade. Lloyd's of London said it cost $400-million an hour in delays. The world of just-in-time inventory was tossed on its ear.
The Ever Given was freed after a week, but its 20,000 containers were kept in Egypt for four months before it headed off to Rotterdam.
The chip shortage had already hit the car and truck business. People joke that electric cars like the Tesla or the new models from Hyundai are computers on wheels. It is not just electric cars but ALL cars and light trucks. No chips, and the assembly lines slow. That meant a shortage of cars and light trucks being built. That meant the price of used cars went up; in many cases, certainly with Tesla, used cars were selling for more than new ones. A Tesla in hand is worth two in the bush.
In cars, semiconductors are needed for everything from entertainment systems to power steering. It is the reason that fixing a car is so complicated. They have to be plugged into a diagnostic tool that, in most cases, only the dealer has.
The current chip shortage goes back a few years. Economics 101: the shortage is due to strong demand and no supply. This goes back to COVID lockdowns in the second quarter of 2020 when demand for work-from-home technology went through the roof, and automakers found themselves competing for the semiconductor capacity in Asian foundries.
It isn't just Taiwan. Other countries in South Asia feed parts into the semiconductor machine. Malaysia, in particular, performs many so-called back-end operations, such as chip packaging and testing, that are more labour-intensive than making the wafers, so if half your workforce is off sick due to the pandemic, the whole chip-making system breaks down.
At the beginning of the pandemic, car companies cancelled orders, but as production ramped up again towards the end of 2020, there was little semiconductor supply. This was compounded by demand increases, particularly at the higher end of the autos market, as low-interest rates meant people could afford a BMW on zero percent financing.
While the pandemic was the initial catalyst for the chip shortage, there are things going on in the industry. There is a major shift towards automation and electric vehicles.
These require yet more chips, causing further strain on an already stretched industry.
Capacity is being freed up now due to weakness in some markets, particularly PCs, smartphones and consumer electronics, where sales have been falling since March of this year. But most cars use older chips, which are fundamentally different from those used in PCs and smartphones.
Car sales have been weaker for eleven straight months. Interest rates are high, so carmakers don't have to offer zero financing incentives. Prices are higher.
By the way, if you have a car lease, Consumer Reports suggests buying the car back when the lease is up. It isn't usually a good deal;
But when the leases were being written three years ago, the car dealers didn't know that used car prices would go through the roof because of the supply shortage, and not just of computer chips. Bank makes an error in your favour, as the chance card says in Monopoly. Consumer Reports says you can buy the car off lease and either drive it or sell it and make money.
It won't last forever. J.P. Morgan says car production will be up 7% next year. But that's a bank. Volkswagen – the world's largest car maker, it sells double what either Ford or General Motors does-- believes that semiconductor supply is won’t come back totally until 2024.
Along with cars, there were Gadget shortages. Games were sold out, and cell phones and computers were on short order. All for the same reasons: no chips.
Webcams sold out early in 2020 as everyone started doing this—Zooming from home.
Complicating this is the crypto boom. There has been, and still is, a huge amount of electricity, computer power and the chips associated with all that to run the so-called mining of cryptocurrency. The most recent scandal with that mop-haired crook with the double-barreled name shows it is a giant Ponzi scheme. Imagine two huge public union pension funds investing in it. The talent and energy expended on crypto is a minor contributor to the world of shortages, but so frustrating to watch.
There are also paper shortages.
I write books for people, using producing at least one a year. In most cases, after writing it, I organize the printing because the book is for friends and family, not the public. I just sent a book to the printer this morning after eight months of work.
I knew about the paper shortage, so I booked press time last February for delivery this coming February when the firm I wrote the book for plans a party to celebrate its 30th anniversary.
A couple of months ago, Friessens, the printer in Winnipeg, sent me a note saying the price would be thirty-five percent higher than the original quote from last February. By the way, I could have had the book printed in China for less, but there is absolutely no way I would do that. I always use Canadian printers.
It's the same laundry list for paper shortages. Paper mills closed or slowed down during the pandemic. It costs more to ship the raw product—diesel for trucks, bunker C fuel for ocean-going ships and Lakers.
And then there is working from home. People order stuff from Amazon, Staples or Indigo, and it arrives wrapped in cardboard. That has the unintended consequence of adding to the paper shortage.
Those ubiquitous cardboard boxes are made from the same trees that are mashed into the same pulp that paper is made from. There are only so many trees to meet all the demand for paper and cardboard. And the paper mills make more money churning out corrugated cardboard than they do fine paper.
A few months ago, I was playing bridge with a man who was moving house. He complained that he couldn't get any cardboard boxes at the liquor store, and the local Home Hardware was out. I explained the Amazon box theory to him. He didn't believe me.
He has a Ph.D. in some scientific discipline but not economics.
Back at Friessens, and Transcontinental, an excellent Quebec printer I also use, they want to know the exact number of pages the book will be. In the latest case, it is 288 pages. I gave them that number last week.
You would think that book publishers would keep tons of paper on hand. But no, they only order the paper when they get the order.
European magazines were hit by a strike at a fine paper mill in Finland. Two publications I get—The Economist and History Today—all of a sudden had thinner paper that creased easily. History Today apologized and explained, but The Economist carried on regardless. I am delighted to say that the Finnish strike is over, and things are back to normal.
Back to books. The other thing you need for a book, besides words and paper, is glue.
Yep, glue to stick the paper to the binding. And you guessed it; there is a shortage of glue.
One thing probably related to paper: the children's Tylenol shortage. There wasn't a shortage of Tylenol as much as there was a shortage of packaging under Canadian rules.
Glass.
A friend of mine bought a dilapidated bungalow on Brome Lake in Knowlton, where I spend half my time. He's an architect, and I watched as he struggled to find materials to mould his beautiful plans. He started in early April before the snow melted. There were delays in finding drywall and other materials. He moved in over the summer, but his house was far from finished. For months the large windows he wanted to get a view of the lake never arrived. It started getting cold. His compromise was coving the windows with heavy plastic keeping out the wind instead of triple-glazed glass.
When the windows did arrive, his contractor was always too busy to get around to installing them. They went in a few weeks ago.
That's another problem: finding workers. Along with a shortage of the stuff needed to make glass, there were fewer workers who wanted to do the dirty, dangerous work.
Scouring the Internet, I came across a manufacturer of plate glass—the kind used in windows my friend needed—who said they were working on it.
"We have increased wages to all employees to a minimum $14/hr effective January 2022," they said. Whooopdie-do. No wonder they have a hard time finding workers. There is another shortage in Canada and the United States: workers. There are other jobs that pay more.
There is a shortage of workers everywhere. Store windows advertise for full-time staff. Restaurants cut their hours because they can't find people.
One of my favourite coffee shops has stopped serving full breakfasts because they can't find short-order cooks. Last summer, I decided to pick up a Mcdonald's in Bromont, Quebec. No moans please.
At the pickup window was a sign offering jobs at seventeen dollars an hour with benefits. That's more than the official minimum wage.
There is also a lawyer shortage. And the reason is American law firms are recruiting young Canadian lawyers. I just finished a book on a law firm – it went to press this morning—and one of the things that happened during the pandemic was Wall Street firms would contact young associates – lawyers on the lowest rung at law firms—offer them a hundred thousand dollar US bonus, put them on the payroll immediately and let them stay in Toronto while they studied for the New York bar exams.
The pandemic produced boom times for corporate law firms as there was a ton of work raising money.
The firm I wrote about had to pay more to keep its young people.
In Britain, there is an egg shortage. It is a combination of avian flu and rising grain prices because of the Ukraine war. Farmers say they can't make enough money producing eggs. Stores in Britain are limiting how many eggs customers can buy.
There is a Turkey shortage in Canada as well as in Britain and the United States…again Avian Flu. It is also due to a labour shortage. Because they have been bred for white meat, domestic turkeys have huge breasts, and the Tom Turkeys can't mount the hens. They have to be artificially inseminated, and that is labour-intensive.
Grocery stores are making out like bandits with the food shortage. Last week I had lunch with a guy who was once a top executive at a grocery store chain. He smiled and said grocery chains do better when there are shortages. Say the profit margin is two percent, and lettuce is ten dollars instead of five dollars. Profits are higher.
When I told the former food executive about this talk on shortages. He thought for a second and said what about a shortage of patience? He told me about two recent road rage incidents. In one he was doing 130 kmh in the lane for people with two people in the car. A guy came up behind him, started flashing his lights, even though there is a solid line in that special lane. The jerk pulled out, came back in in front of my friend and then jammed on his brakes. Another subscriber told me he was cut off twice on the Rosedale Valley Road in the centre of Toronto.. Maybe we are all on edge after the extended lockdowns—which are not totally over—and it's tough to learn to live together again.
And finally, there is a shortage of Christmas trees. It is related to two economic crises: First, the financial meltdown of 2008. Many tree farmers were rushing to deal with other things in their lives- raising Christmas trees is, in most cases, a part-time job, so fewer trees were planted.
Next, the Covid pandemic. It takes trees eight to ten years to get to the right Christmas size, so a lot of them were bought during Covid.
People were at home and wanted trees. That means they were overbought, even some of the smaller ones.
And then there is land. Christmas trees are often grown on marginal farmland. That is the same type of land that can be used for development, so some of that was sold. Farmers have to pay more for fertilizer and diesel—thank you again, Vladimir Putin—so they give up on planting.
The Canadian Christmas Trees Association – yes, there's an association for everything- says there are 50,000 acres given to Christmas trees across Canada. That's down from 70,000 acres.
The plastic tree from Canadian Tire is looking better by the day. But plastic is pricier too. You can't win.