Fuse lit on global recession bomb

My base is that a global recession is coming fast. For some time I have been concerned that the giant US inventory rebuild has way overdone it. Here’s wholesale inventories:

This is the result of bogus inflation expectations arising from temporary supply-side disruptions. In other words, over-ordering.

It’s not a problem in and of itself. But, if the US experiences an economic shock that hiccups demand then it becomes a very large problem, very quickly.

As end-users stop ordering, suppliers are suddenly glutted and they run down the inventory mountain. This sudden weakness then flows straight up the supply chain to China and Europe via their exports.

And there is shock underway: an oil shock. It has contributed to this incredible tightening in global financial conditions:

Even worse, it’s so far mostly outside of the US where inflation is strongest meaning the Fed has to tighten directly into the storm:


The fuse is lit on a very big bomb sitting right under the global economy.

Houses and Holes
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