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Inventories Look Historically Lean Compared to Sales, But Appearances Deceive

May 26, 2022

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1:30 pm

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25 comments

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Economics

Inventories and sales data from the commerce department, chart by Mish

Historically speaking, the inventory-to-sales ratio is very low (see chart below).

Inventory-to-Sales Ratio

The latest data is from March. I excluded auto dealers because they are having one heck of a time due to chip shortages.

Elsewhere we see “just-in-time” on steroids with an inventory-to-sales ratio of 1.12.

Recently, inventories have been rising faster than sales. And what if sales falter?

Top 20 Importers

https://twitter.com/FreightAlley/status/1529633686366437378

“List of top 20 container importers into US. Many on this list have excess inventories, which likely means their maritime volumes will drop as they work off excess inventory. The top 20 container importers represent approx 25% of maritime container volume imports into US.“

What About Amazon?

https://twitter.com/FreightAlley/status/1529636884971937792

Supply Chains Won’t Return to Normal

https://twitter.com/FreightAlley/status/1527015610743414786

Shipping Slows

https://twitter.com/FreightAlley/status/1529642414952132608

Weird Season

https://twitter.com/ResearchRonin/status/1529623963940311042

The Big Kicker

https://twitter.com/FreightAlley/status/1529627377248116736

“A lot of items in excess inventory are seasonal & big-ticket. Rather than heavy discounting, we are more likely to warehouse these goods until they sell. It will mean slower shipping volumes, probably most notable in Q4/Q1.”

Really!?

Contrarian Take

https://twitter.com/FreightAlley/status/1529822858041384966

Let’s discuss the recent data.

Target Plunges 25%, What About Yesterday’s Big Retail Sales Blowout?

The advance retail sales reports by the commerce department were stunning. Reports by Target and Walmart strongly suggest something else.

For discussion, please see Target Plunges 25%, What About Yesterday’s Big Retail Sales Blowout?

New Home Sales Plunge 22.5% In April, 16.6% From Deep Negative Revisions

Please note New Home Sales Plunge 22.5% In April, 16.6% From Deep Negative Revisions

What will that do to demand for appliances, carpet, furniture, lawn mowers, etc,?

Frantic Discounts Coming

“Rather than heavy discounting, we are more likely to warehouse these goods until they sell.“

I expect that idea to explode in a big wave of frantic discounts.

This post originated at MishTalk.Com.

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25 Comments

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Six000mileyear

4 years ago

I feel validated. The retail associate who told me back in December that Holiday inventory was stuck in the Pacific gave me more accurate information than any expert in the financial media. Judging by the stock market, those in the know were selling in November and December before any expert began to suggest seasonal inventory arriving out of season will be a drag on earnings.

PapaDave

4 years ago

Inventories of commodities keep going down. Which is why prices keep going up. Inventories of crude oil + distillates + gasoline have been falling for two years. In addition, the US no longer has enough refining capacity to meet growing demand, and no one is interested in expanding capacity. Which is one reason we are importing gasoline from Asia.

https://www.bloomberg.com/news/articles/2022-04-21/gasoline-imports-flowing-to-u-s-west-coast-at-near-record-pace

https://www.bloomberg.com/news/articles/2022-05-18/asia-to-ramp-up-gasoline-exports-to-us-as-sky-high-prices-beckon

radar

4 years ago

Reply to PapaDave

Sounds like there’s investment starting up – https://finance.yahoo.com/news/rystad-oil-gas-investment-rise-180000483.html

PapaDave

4 years ago

Reply to radar

After a decade of underinvestment, it isn’t surprising that there is a small uptick in investment now, with prices as high as they are. However, in many cases the investments of today will not bring new production online for 5 to 10 years.

For example, Saudi is talking about some current major investments in new production, which could bring on 1 million bpd by 2027.

And the majority of companies that I have invested in, continue to spend as little capex as possible, just to maintain production. Only a few are modestly expanding capex. If you already have 10-30 years of reserves, what is the incentive to go find more now, when most expect oil to become a stranded asset in 10 – 20 years.

radar

4 years ago

Reply to PapaDave

I agree. My best performers YTD have been CVE, MRO, TRMLF, and VLO. Do you see any good buy’s now or waiting for a pull back?

PapaDave

4 years ago

Reply to radar

I keep a core position which I will not trade. I have held it since I built it on recommendations I found here. I plan on holding this core position until I see a fundamental shift in the supply/demand balance. I am still watching inventories continue to drop.

I also have a trading position where I buy on the dips and sell on the rips. Sometimes in the same day, and almost always within a week, as volatility is high.

I hold over 20 oil stocks and it is very difficult to pick between them as to who will do best going forward. If you are a contrarian thinker, the stock that has appreciated the least is Tamarack, TVE a Canadian small cap. It is doing phenomenally well but the stock price has lagged compared to almost everything else I hold. Perhaps there is a good reason, which I do not know, for the underperformance. It is the only one I hold that still has not doubled in value. Some are up over 4x.

radar

4 years ago

Reply to PapaDave

Thanks so much for the tip, Dave, I’ll check it out. If you don’t mind my asking, when you are trading, do you use the Bollinger bands over say a 5 day window? I’ve never been a trader but wouldn’t mind giving it a try on a small portion.

I was a little late to the party, so my best positions are only up about 60%. So thankful I found the posts by Realist, he was a game changer for me after spending too much time waiting for a crash. If he ever comes to Huntsville, AL I owe him a nice steak dinner! Tim

PapaDave

4 years ago

Reply to radar

I am not a technical trader. I do not use charts and do not consider myself a sophisticated investor like those who recommended the oil stocks on this site long ago. I merely trade by my gut, buying after stocks dip, not worried about the dip, because I expect the oil stocks to continue their upward run in the next few years. Even when they dip and things look grim, according to all the “experts” out there, they tend to bounce back very quickly. I rarely have to wait longer than a few days to sell at higher prices. Of course, sometimes they just keep going up, but thats okay because I still have my core position.

radar

4 years ago

Reply to PapaDave

Thank you!

PapaDave

4 years ago

Reply to radar

You’re welcome. Since the commenters who recommended oil stocks, like Realist, are no longer posting, I decided to start posting recently. I bought in to the logical scenario that they thankfully presented here and have profited greatly from it. So I decided to keep the topic going, in the spirit of trying to help others out in these difficult times.

I don’t think I can come close to their level of expertise, but I have learned a lot from them and continue to try to learn on my own as I follow this scenario which should continue to play out for several more years.

radar

4 years ago

Reply to PapaDave

Realist got banned, and I’m really not sure why. I think he came back as imgreen and got banned again. He always had good points to counter Mish’s arguments, I guess Mish got irritated and it was easier for him to ban someone than to openly debate his points.

I really appreciate you keeping it going and trying to help folks like myself. I think you come very close making the points as well as Realist did. You even have the same style of writing!

PapaDave

4 years ago

Reply to radar

Thanks. i consider that a compliment. I am starting to get the hang of this commenting thing.

Mish has a great blog. I learn a lot from it. And from many of those who comment here.

Tony Bennett

4 years ago

It Is All One Trade working well today … good luck getting inflation down while equities soar …

https://finviz.com/futures.ashx

Steve_R

4 years ago

Reply to Tony Bennett

Bear market rally, oversold in a down trend. Hard to believe when Bloomberg commodity index is at an all time high. Get them all longed up and pull the rug out next week, my guess.

FooFooFed

4 years ago

AND…. ppl are paying more and buying less. Jeff Snider at Alhambra outlined this at least 8 weeks ago. Bigger issue is…why is the 4 wk Tbill showing 3 days in the last 9 where the daily rate dropped and stayed there fore most of the day. Collateral issue.

Carl_R

4 years ago

As far as the chance of deep discount sales, it kind of depends on the item. For seasonal items, and fashion items, look for sales. For durable goods, not so much. The more things change, the more they stay the same.

Tony Bennett

4 years ago

The first chart … look how sales (and inventories) above trend line in past 2 years … sales are nominal and some of growth inflation oriented, but how much due to fiscal stimulus (that helped boost inflation) now pretty much gone?

If sales drop … and inventories stay on trajectory …

Zardoz

4 years ago

Reply to Tony Bennett

I wonder if ebay is seeing an uptick in sellers. Enough people buying used stuff from each other could have an impact.

RonJ

4 years ago

@FreightAlley: “The world has enjoyed a period of unparalleled growth, peace, and excess and that has allowed for smooth running supply chains. Those days are behind us and we are entering a world with far more supply chain shocks, instability, and uncertainty.”

It would help if China transitioned from a ZERO Covid policy.

Zardoz

4 years ago

This is getting interesting. Maybe I’ll be able to score some bargain off road toys AND a bargain house.

The wait has been long and grim. Will the capricious universe reward my stubbornness?

Tony Bennett

4 years ago

Your focus on retail inventories, but total business inventories / sales heavier at 1.27

“Rather than heavy discounting, we are more likely to warehouse these goods until they sell.“

I expect that idea to explode in a big wave of frantic discounts.

…

Yes.

Store where? … when system optimized for J-I-T?

Furthermore, many items “dated” … clothes? THIS year’s fashion … will it be in style NEXT year? … electronics? Most everything has yearly upgrades … perishables?

In addition, the lead time for imports measured in months … probably 6 months for stuff out of Asia … and 6 months ago Cramer was calling US economy a “juggernaut” and the best in 100 years … wonder how ordering went then …

US worker under siege and suffered negative real wages since last Summer.

KidHorn

4 years ago

Big ticket seasonal items? Are these things like fake Christmas trees and patio furniture?

Carl_R

4 years ago

Reply to KidHorn

Many things are seasonal, including things like clothes, lawn care products, recreation items, home decorations, car care products,school supplies, and the list goes on and on. Some of those are durable, such as school supplies, and could be sold the next year, others such as clothing items, less so.

Casual_Observer2020

4 years ago

Reply to Carl_R

Since there are 4 seasons, everything is seasonal.

Carl_R

4 years ago

Reply to Casual_Observer2020

Not so. Some things we use in nearly constant amounts year round. Toilet paper would be an example.

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Inventories Look Historically Lean Compared to Sales, But Appearances Deceive

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