John Lekas – CEO & Portfolio Manager
June 29th, 2022
Last Sunday I went to get hanging plants at Fred Myer supermarket. The open gate at the Garden Center was locked which is unusual so I inquired why? The gentleman explained that he was the only employee who was working that day; normally it was a 6-person crew. So, he had to move inventory, check out, and do customer service. He said he couldn’t do it all so everything was routed to the grocery checkout section. I had a similar experience that day when I wanted a haircut. I went to the Great Clips website to schedule a haircut and it was not available. Since you couldn’t book a haircut and nobody was answering the phone, I figured I’d just drive down as it was 5 minutes away and should be empty.
I got there and was informed it was a 4-hour wait. I asked why? The hairstylist explained despite 12 stations available she was the only one working that day, so it was a long wait. It was apparent that this type of default would hurt all small businesses. If the store moves wages high enough to attract people, it will fail. If they continue with a skeleton crew, they will fail. This, in a nutshell, is the supply chain problem in the United States.
My conclusion is small businesses will fail in 2022-2023 at a high rate impacting growth numbers and GDP in this country. This will push unemployment (U-3) to 10%. Small businesses account for 95% of employment growth. Prices will remain high regardless of the FED. But the FED will continue raising rates because they believe it’s typical inflation and that it will solve the problem, but it will not. The correlation between currency and commodities is broken. The Biden Administration will continue with unemployment benefits because they want to get re-elected in November. The problem will remain, in addition, the consumer and businesses will have higher borrowing costs.
I think Jamie Dimon spoke the truth when he said there is an economic Hurricane coming. He walked it back, but he said what he believed. Banks, in general, will tighten further adding to the problem. The Ukraine conflict is another derelict operation that should not have been allowed. Shortages of food and oil and gas will persist because of this. In addition, sanctions have only hurt the USA and Europe. For example, the Biden Administration to deny payments from Russia to US investors is ludicrous. It makes Russia’s pile bigger and our pile lower. Putin is winning through the sanctions by windfalls in oil and gas and a much stronger Ruble. The USA and Europe are losing. In summary, the war, the FED, and the weak consumer are going to make it tough sledding up till the elections