Deflationary Tsunami Coming

 We have been saying for the past year that used campers are going to be stacked up everywhere with repo campers being sold for pennies on the dollar.  Why?  Because millions of Americans went and bought campers, on payments, during the Covid shutdown year. And now they have $5 gas and expensive campgrounds and realize it’s costing $1000 to pull their camper anywhere.  So deflation has already come for the huge camper lots in the city or town near you.  But falling prices may soon start extending to all the other STUFF that we buy EXCEPT FOOD!  Think sofas, pillows, lumber, grills, clothing.  All these things were tough to find but now are in large supply.  Folks are spending so much on food and gas that they will soon quit buying all these household goods and prices will fall...maybe?  No one knows for sure.

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Today both Wall Street and the mainstream media have caught up, with both predicting unprecedented deflationary price cuts in the coming weeks.

We start with Morgan Stanley's bearish strategist Michael Wilson, who in his latest bearish weekly note (available to pro subs) focused on shrinking margins in general, and on retailer discounting in particular, and wrote that while there is a modest pick up in over sales, the far more concerning issue is that "inventory across the sector is up about 30% YOY and sales growth is up about 0% YOY translating to approximately 30% YOY of excess inventory" and while mark down/margin pressure did not hit in 1Q it should hit June/July. Indeed, "store checks show that aggressive discounting has already started as of the Memorial Day holiday weekend. Discounting pressure could accelerate through July."  And since more retailers are now discounting, "companies are having to offer even bigger discounts to compel consumers to buy, and it is a race to the bottom in margins in order to clear through inventory."

It gets much worse, however, because courtesy of the delayed nature of the bullwhip effect, Morgan Stanley thinks it will be some time before retailers can cut back on forward inventory orders! Companies are no longer in a position to order 6 months in advance because of delays in the supply chain, and are currently working with about an 8 month lead time. Shockingly, this means decisions today to cut forward orders could begin to eliminate the inventory problem in 1Q23, but not likely before then. 

As a result, Wilson concludes, "we are likely to see a tidal wave of discounts that carry us through December because 2022 inventory orders have already been placed."

It's not just Wall Street finally catching up, however: overnight the WSJ also writes that "Big discounts are coming" as "stores have too much stuff."

Echoing everything we have written in the past two months, the Journal alerts its readers that Target, Walmart and Macy’s announced recently that they are starting to receive large shipments of outdoor furniture, loungewear and electronics (and if Morgan Stanley is correct and lead times are indeed 8 months they will keep receiving these into 2023!) everyone wanted, but couldn’t find, during the pandemic.

https://www.zerohedge.com/economics/deflationary-tsunami-deck-tidal-wave-discounts-and-crashing-prices