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"Dear Jay Powell: It's the supply chain, stupid. Yours truly, Shah."
I've never bought into the whole "inflation is 'transitory'" line pushed by the aforementioned Fed Chair and the U.S. Federal Reserve.
That assessment is wrong - dead wrong, in fact. The inflation we're experiencing right now is "structural," or "sticky." I've said as much openly, here, and on FOX Business, and in my alerts to my subscribers, but the Jay Powell-headed Fed clearly doesn't get it. That's creating huge risks for the U.S. economy.
But for folks like us, who understand what's really going on, and who can see the difference between "transitory" and "structural," there are huge, windfall-sized opportunities to grab.
Starting with the artificial intelligence (AI) stock recommendation I've got lined up for us today...
The Real Root of This Bout of Inflation
In a news conference back in March, Fed Chair Powell said the "Great Reopening" could bring about price spike-inducing bottlenecks in the supply chain. Of course, he dismissed these as "one-time increases [that] are likely to only have transient effects on inflation." In other words, any inflationary pressures would be "transitory" - fleeting in nature.
We all know how that turned out.
Even then, I labeled these increases as "structural" - a longer-lasting inflationary uptick resulting from meaningful changes in the composition of supply or demand.
But the concept of "transitory" inflation became a kind of mantra for Powell - and a wrong-headed one, at that.
I mean, starting in March, the Fed correctly noted that a quick bounce-back in spending triggered by resurgent economic growth would create "supply bottlenecks." So how could central bank policymakers not also see that profound, deeply embedded supply chain problems were the root cause of spreading inflation?
That's the textbook definition of "structural" inflation.
And it's only going to get worse.
Shipping lanes are clogged with fully laden cargo ships that can't get into America's understaffed, relatively low-tech ports.
And when those ships finally are offloaded - often weeks or even months or more behind schedule - they don't have time to pick up empty containers if there are no loaded containers on the docks to be exported. They're simply moved out of the way so the next ship can be unloaded.
And that's only one example of the supply chain problems that will just continue to fuel the inflationary blaze.
The Solution and the Opportunity Are Becoming Obvious
You can see my thinking here. The snarls in the supply chain are creating major swoop-in/cash-in investment avenues for us to play.
And those opportunities are both near- and long-term in nature. Here's what I mean.
In the near term, we can turn the shortages to our advantage. For instance, we know there are shortages in shipping containers and cargo ships. So, we can track down the companies best positioned to fill those needs during the supply chain crisis - shipping companies are a great example, since shipping rates have skyrocketed - and make hay there.
And in the long run, we can identify and isolate the supply chain glitches that will require major outlays to fix - and put our money with the investment and revenue beneficiaries.
Take that shipping shortage I mentioned: Far too many are stuck in transit lanes or outside of ports, and others are being used as "floating warehouses." Mitigating that shortage is a longer-term proposition - as we watch for ship construction to pick up. Here we'd be looking at shipbuilders, steel suppliers, and the makers of the reciprocating-diesel engines that power these vessels.
I'm researching the best picks for that as we speak, but we'll make this shortage play today...
This AI Company Is Key to Greasing the Supply Chain
The firm I've got my eyes on is also being watched by eight Wall Street rating firms, six of which have determined that the company is a "Screaming Buy" - and I agree.
Manhattan Associates Inc. (NASDAQ: MANH), a $9.6 billion market-cap monster, creates specialty software that smooths over the logistical issues that cause supply chain disruptions. It serves more than 1,200 customers worldwide, giving them incredible shipping speeds across nearly 8 million miles, four oceans, and six continents.
To pull that off, Manhattan specializes in applied artificial intelligence and machine learning. As more aspects of our global supply chain become automated, they need to communicate with each other and learn from experience in real time. The smarter the tech, the fewer supply chain snarls.
As the company puts it, humans are no longer fast enough to handle all the logistical information required to keep supply bottlenecks from happening - so its software steps in to fill that gap.
In Manhattan's last earnings call, it revealed that it topped estimates again. Its third quarter marked the fourth consecutive quarter in which it beat earnings-per-share (EPS) estimates.
And its revenues are robust, too. Based on the last 12 months, total revenue is 9% greater than the annual revenue reported Dec. 31 last year. It's currently looking at a 17.25% profit margin, which translates into fat profits, clearly evidenced by its year-over-year 46% quarterly earnings growth.
Look, inflation won't abate until the supply chains flow smoothly again. That could take years, given how much infrastructure has to be upgraded, updated, replaced, reinvented, automated, or all of the above. A company like Manhattan Associates, which will play a key role in these massive changes, is a no-brainer and a must-buy.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.