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Peloton's woes could be a preview of what's about to come
Remember back in 2020-2021 when $PTON was struggling to produce enough bikes and treadmills?

When they had to acquire a fitness equipment manufacturer for $420 million just to have more infrastructure to meet the unprecedented demand. Source: https://www.cnbc.com/2020/12/21/peloton-to-acquire-fitness-equipment-maker-precor-for-420-million.html

When they spent another $400 million to produce their first manufacturing facility in the US, in the state of Ohio, as a way to skirt past the supply chain woes. Source: https://www.cnbc.com/2021/05/24/peloton-to-invest-400-million-on-first-us-production-facility-in-ohio.html

Now, they're dealing with the opposite situation. A situation where demand has fallen off a cliff. A situation so severe that they now have to halt production. Source: https://www.cnbc.com/2022/01/20/peloton-to-pause-production-of-its-bikes-treadmills-as-demand-wanes.html

While Peloton is the COVID stock spending its time in the limelight as investors are shocked at how a fast-growing company could suddenly be sitting on a ton of products that people wanted yesterday.

This situation that Peloton is facing could also be something many more firms will face in the future. Inflation is through the roof. Supply chain issues are reducing consumer sentiment. Everything that we're seeing from empty shelves to a parade of cargo ships off the coast of SoCal is making people rethink their consumption habits.

Many say that we're in a shortage of various goods like semiconductors and vehicles. However, when looking at the data, this "shortage" is the cause of an unprecedented demand surge.

The chart below shows the huge supply-demand gap for consumer goods. Global Real Production of Goods has been increasing. Comparing that to the nominal demand of goods, production is dwarfed compared to demand.

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As seen below, the output is well above pre-COVID levels. Producers are producing way more than ever!

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And imports are well above pre-COVID levels too! Despite the congestion at the ports, we manage to continue to import more product than ever.

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As for the semiconductor industry, chipmakers are making more chips than ever. Every year, since 2019, chipmakers continue to expand their production of chips.

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While the production of chips has been increasing consistently from 2019 to 2020, the unprecedented demand for chips in 2020 promoted chipmakers to expand production aggressively. That's why we see an acceleration in chipmaking in 2021.

While we might be seeing retail sales data (like the one below) today, in the future, that number could drop as consumers start to cut back on consumption and wait until these issues with "shortages" and supply chain issues get sorted out.

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And don't forget that it's not only Peloton that's seeing demand for goods slowing. $AAPL told its suppliers in late December that it's seeing demand for their new iPhones slowing as well. Source: https://www.bloomberg.com/news/articles/2021-12-02/apple-tells-suppliers-iphone-demand-has-slowed-as-holidays-near

As for the vaccine makers like $MRNA $BNTX and $PFE, they too are seeing demand for their vaccines slowing as well. The mad rush for boosters was quite temporary and many of the vaccinated are resisting the urge to get the booster because they don't see a point in getting it when bureaucrats and pharmaceutical companies are looking to add a 4th dose.


These few instances are just the beginning. We will soon see slowing sales for physical goods as time goes on. And with that possibility, we can see firms resorting to the sale of digital goods. $NKE and $RL are some of the retailers that look to benefit massively from resorting to the sale of NFT virtual clothing if ever demand for their physical clothes falls off a cliff.

If there's one lesson I've learned from my high school economics class, it's that the peak of the Roaring '20s was evident when consumers started consuming less.
Bloomberg.com
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