"Globalization was under pressure before the pandemic. The rise of populism in the West since the Great Financial Crisis was, in part, a reaction against globalization. The pandemic has accelerated the pace of deglobalization. Lengthy supply chains have been exposed as wanting. Although businesses are loath to give up on the cost savings they have enjoyed by seeking low-cost labor abroad, persistent disruptions and lost sales will eventually lead to a desire to make supply chains more resilient, which will likely bring a shortening of supply chains and reshoring. This process will allow greater security of supply but at higher costs. Inflation has already increased; although the pace of price increases will almost certainly ease in 2022, the level of prices isn’t likely to retreat anytime soon.
As supply chain resilience becomes paramount, we expect a shift from just-in-time to just-in-case inventory management. This change would represent a balance sheet shift from financial to real assets and would also tend to bolster inflation."
(Current Perspectives dated 12/16/21 by Mark Keller, CFA, Bill O’Grady, and Patrick Fearon-Hernandez, CFA of Confluence Investment Management)
Full article can be found here: https://www.confluenceinvestment.com/wp-content/uploads/2022_Outlook_Year_of_Fat_Tails.pdf