Crystal Ball Roll Call

Where do you see rates, truck prices, and the economy headed right now?

Bottom Line Up Front (BLUF)

Interest rates are going up and at a fast pace. Election season is coming around the corner. Countries are looking to bring home manufacturing. Supply chains remain in a state of disorder. The dollar is rising. Everybody is on the same side of the boat waiting for the clearance sale. The clearance sale may be on hold for quite some time.

Disclaimer

I'm an idiot. Seriously, I can provide references. Like, idiotic to the degree that doing the exact opposite of everything I say is also idiotic. My level of idiocy follows no patterns. I only share my perspective so I can come back later and feed off the self disappointment. The only good thing I've done is lucked into a good woman so thank you Lily.

Introduction

Outlooks for anything greater than 3 months ahead are about as straight as the Mississippi Delta of varicose veins running down your old lady's legs. The Federal Reserve is jackknifing down the exit ramp while the average American gripping the steering wheel of his Honda is puckering his cheeks looking at the mess unfolding in the rear-view and muttering something about a soft landing. We might have a KY Jelly shortage on the horizon. Or we might not. I'm going to lay out a few of the major things that are on my radar as I look ahead and try to navigate this billionaire's boneyard.

Monetary Vs Fiscal

The Fed is fighting inflation by raising interest rates. There's a lot of liquidity on bank balance sheets that are tied up in post Great Financial Crisis (GFC) mandates relating to Global Systemically Important Banks (GSIB's). A few Regional Fed members have expressed the idea of relaxing those requirements. That's the ammunition for a soft landing but timing is everything. The likelihood of it happening is high enough to take seriously considering they lifted all reserve ratio requirements for banks during covid with that requirement being a bedrock aspect of the current financial system. The game plan seems to be hold her tight 'till inflation's in the bag then let her rip.

The rate of change for these interest rate hikes may be tied to the imminent headwind to the Fed's policy, of election cycle ether. Incumbent parties without fail unleash a wave of fiscal spending in the back half of the four year term which is probably best described as a form of bribery. With that on the horizon and no control over it the best case scenario is to thread the needle of killing inflation before the spending spree ensues.

Fortunately for both, half the problems they've created over decades don't have a quick solution, inflationary spikes have historically happened in tandem (crucial point), and the web of globalization is slow to become untangled as it seems want to do currently. The cynical part of me pictures the entire band of thieves rubbing their greasy mitts whispering "we got em' right where we want em" because every crisis is an opportunity for more cronyism and plundering.

Public Vs Private

In Leonard Read's I, Pencil, written in 1958, the diversity of the family tree for a single pencil is outlined to highlight the absolute interdependence of manufacturing. The lifeblood of manufacturing is supply chains and when hiccups occur it's butterflies and bullwhips. While aspects of government are incredibly important to our accomplishments the meat and potatoes on this plate of ours is produced through the sweat and ingenuity of our undirected efforts.

The following passage from Mr. Read sums it up quite well:

"I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human masterminding!"

This helps us to arrive at the most pressing question of the day. How much will these fools funk it up before we fix it? By all appearances there's a lot more pain to come. In what package will the cow-pies arrive? My best guess at this point is wrapped in the term: Allocation.

Allocation means winners and losers chosen through less than clear standards. All animals are equal, but some animals are more equal than others. We're about to see who is the most equalist. At the dealership level does it start out with geographic limitations for prospective customers? What is the mix for order book fulfillment when supply doesn't meet demand? I guess we'll see.

Other aspects of allocation are going to be a clown show with ample opportunities for politicos to sling mud and lick egg off each others faces. Paraphrasing them folks over at Daimler what's the end result when Daimler in Germany receives an energy allocation as a crucial link in the supply chain but their windshield supplier doesn't?

Domestic Vs International

When handshakes become hand grenades self reliance becomes self preservation. Domestic thresholds of outsourced industries will shift dramatically. Fire up the furnace daddy's coming home. To what degree who knows but flip a coin for too much or not enough and run with that. In the meantime King Dollar is All Along The Watchtower.

As the value of the dollar changes the world adjusts. Sometimes it's shifting sands but right now it's tectonic in nature. Dollar denominated debt, petrodollars, and trade balances. As an American with a domestic focus what is most pertinent at this moment is that as the dollar skyrockets higher the world is chasing it. Generally speaking, when the dollar rises imports become cheaper at the expense of our export volumes. We may be in a position where this dynamic acts as a floor for the popularly predicted recession.

In addition to that, capital expenditures for the repatriation of domestic industries worldwide will be fueled by bank balance sheets and the previously mentioned political opportunists issuing checks to be cashed with your ###...ets. Let the money flow version 92.0.

What Follows?

Inflationary spikes historically happen in tandem. Where are interest rates when the second spike occurs if it does occur? If your strategy is to finance equipment and the prices haven't dropped substantially what is the floor of your interest rate window from lenders? Is it higher from here, a place where mortgages are in the 6-8% range, and how does it correspond to commercial lending?

What is the likelihood of supply chains remaining constrained during a transition period which ultimately support a higher level of inflation? If import volumes rise due to dollar strength will that act as a backstop to our domestic transportation industry and become a floor for rates?

What's the likelihood post covid class 8 vehicles are less mechanically reliable due to part substitution in the manufacturing process and if so to what degree? Will major players allow fleet ages to rise due to an uncertainty of backlogged order fulfillment and 2026 emissions standards?

From my foggy spectacles nothing is clear and the lesson of the last few years is they call it a sucker punch because you have to be a sucker to fall for it. There's a long list of guarantees and certainties that flew in the face of the facts but also dissipated with the smoke filled flatulence that polluted half the world.

Multinationals and other global behemoths are sitting on war chests waiting for fire sales. So is the guy mopping floors at Petro and the gal curbing sidewalls for Swift. Everybody knows that everybody knows what's coming. As an expression, buy the dip has become more financial than French Onion at this point post Wallstreet Bets. That presents a few major paths forward.

One route is that you time it perfectly and your Cash Walks The Line. You're a hero. Lot Lizards brand your DOT number on their bosom. Welcome to paradise you old dog. Or another option is waiting too long then becoming a slave to the Fear Of Missing Out (FOMO). Or shooting too soon and being stuck holding some other suckers bag. The world is an oyster.

Your guess is as good as mine. I think it gets a little more spicy but not for the blue collar aspect of the world economy. I think there's a really high chance we enter an age of sweat equity. If that's the case and there's more men than shovels when this thing gets to rocking you might have to delay your shovel buying 'till a little later in the game.