RISK OF DEFLATION

It is possible that we will face the risk of deflation in the next 2 to 3 years and the deflation is for the good and bad. Right now, there is a cyclical deflation in the pipeline, commodity prices down and even oil up to 80%. It is because major China is in recession and Europe is also in recession. There is deflation coming in the pipeline and there is a huge inventory build-up that is surprising. We are seeing Nike reported in its recent quarter that sales were up 3% and its inventory was up 44%.

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They reported that their inventory was up in North America by about 68% and the inventory in transit is up by 85%. Of course, this is going to overwhelm the retailer and the only way to have good sales is to set serious discounts. There is deflation in the longer term because of innovation, which is a good deflation. If you reduce something, there will be an increase in units. If you look at some other aspects, you will see deflation all over the place and FED is considering two indicators which are CPI inflation and unemployment.

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Speaking about employment, companies did so much trouble employing during the pandemic that they decided to keep the employees. The FED will at some point pivot, not too long ago we saw a liquidity crisis in the UK, pension funds because the interest rate hike has been consistent with the FED. Lithium is probably one of the most prolific minerals in the world and it usually takes a very long time to build and mine. I think Tesla has changed the pace of the Lithium mining industry and they have taken a huge risk from a lot of commodity producers.

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As you know already oil price as skyrocketed, and it has been able to find their way around shortages through production and changing chemistry. For instance, Cobalt which is primarily in Congo was very important to the production of batteries, right now Tesla is moving away from Cobalt and Nickel to Lithium Ion phosphate.

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