August 2018 Investment OutlookBracing for Florence
There seem to be technological and psychological factors that are converging to arrive at this “run” on water – and other products as well – every time a rough weather pattern nears. Modern-day supply chains have evolved into a just-in-time model where the supply chain reacts almost immediately to consumer demand and pushes product out to the store when it is needed. This helps the store avoid stocking too much of any product for too long. These efficient systems have undoubtedly been built with the ability to predict future demand based on historical demand (say, chocolate deliveries increase around Valentine’s Day before the stores come close to selling out). But currently, the lag is a bit too long and the demand too high when it comes to restocking emergency staples. There’s never enough bread or milk in a snowstorm. On the psychological side, this is an excellent example of a “short-volatility” mindset in practice. The system is built for, and consumers are accustomed to, the continuation of normalcy. As I mentioned, clean drinking water is probably the most precious commodity in the world. Yet, our society depends on and expects its limitless and (nearly) free availability at the turn of a tap. The prospect of a major hurricane, surely a volatility event in weather terms, puts these dependencies to the test, causing people to stampede for the few remaining bottles as they wrestle with the reality that no system can engineer away the unexpected.
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