Wednesday Musings

“Don't find fault, find a remedy. Anyone can complain.”

– Henry Ford

 This past week Markets (S&P500) down just under 1%, but are still up close to 20% for the year. All three major indices are still near all time highs.

 The inflation debate continues to be a major talking point in markets, and in politics. There are two camps, one that thinks this is just the beginning, and the other who thinks this will past. The later is referred to as "Team Transitory," because they believe that we will transition out of this inflationary phase, making it temporary. As I've mentioned previously, I am in Team Transitory, and believe this will pass.

 One of the biggest drivers of inflation reading is used cars prices. When the COVID shutdowns began many believed that this recession would be far worse than the great financial crisis, and as a result, shutdown production of many items, and global supply chains shutdown. The Rental car industry sold much of their fleets so they could stay afloat, and then everything turned around.

 This has brought a very unique one time event, where supply is greatly limited and demand is artificially increased temporarily. A semi conductor shortage has slowed the production of new cars, making it difficult to purchase new cars, combined with rental car companies desperate to replenish their fleets. These two factors have led us to sky rocketing used car prices.

 The good news can be found in the chart below, where you can see these prices have started to decline. It's my opinion that once the chip problem is solved, supply will increase dramatically, new and used car prices will drop. This like airfares, hotel prices, and rental car prices are all starting to follow suit. The continuation of these trends should prove that much of the inflation we are seeing is transitory.