On the topic of prices from Monday, a great reader letter, which we’ve edited slightly here:

“Lumber and commodity prices fluctuate. Labor prices go one way.”

Sounds like a business owner. The reader continues…

“We have a family business, it’s a service business, so we have very few input costs. To add employees this year we had to raise our starting hourly wage by 16% and pay $800 sign-on bonuses.”

Earlier this summer we took a look at the “sign-on bonus” phenomenon, featuring the example of a boardwalk arcade offering a $1,000-plus sign-on bonus for part-time seasonal employees.

Today’s reader concludes...

“Our labor costs will not go down from the 16% increase. It’s built in forever. Subsequently, we raised our prices by 9% and they will not go back down.”

2020 was a “unique” year. 2021’s economic rebound, possibly “peaking” in Q2, compressed a historically longer-horizon labor market swing. This all has to level out, right?

Plus, we now have the uncertainty of the Delta variant of COVID. More on that below...

And we can’t forget the supply chain shocks this 2020 to 2021 pivot caused.

Point is, let’s assume Delta peaks and falls away relatively quickly. Let’s also assume consumer spending and expansion pick back up again in Q4. Finally, suppose the free money from the government spigot at least slows in the next six months.

The supply chain eventually overcomes its current issues, certain prices level out (commodities, for example, as our reader mentioned) and the labor market settles to an equilibrium.

This all works itself out, right? Before you say yes, read on below.

And send your opinions to TheRundownFeedback@StPaulResearch.com

Your Rundown for Wednesday, Aug. 25, 2021...

Samsung Spending $205 Billion On...

The Wall Street Journal reports Samsung plans to spend $205 billion over the next three years, an investment increase of 33%...

… as the company pursues “leadership in chip manufacturing and a bigger role in COVID-19 vaccine manufacturing.”

The Journal also reports this morning Delta variant outbreaks in Vietnam and other exporting countries in Asia threaten “further supply chain shocks.”

It’s not a fast fix, but the solution to chip shortages is to make more chips here at home.

Samsung, for example, plans to spend up to $17 billion on a manufacturing site here in the U.S.

Texas, Arizona and New York are all possible landing spots for the new Samsung chip plant.

Taiwan Semiconductor, which we mentioned Monday, plans to spend $100 billion in the coming years to increase manufacturing capacity. Intel’s also reportedly looking at a $30 billion deal to buy GlobalFoundries Inc.

Again, good news but there are no fast fixes.

Staying with Samsung, the company’s Samsung Biologics division, which in the past has worked with Roche and Bristol-Myers Squibb and even did finishing for Moderna’s COVID vaccine...

… announced plans to also build new facilities to help the company expand its biotech footprint.

To put a bow on today’s Rundown entirely - prices, labor costs, supply chain - there aren’t any shortcuts or magic solutions.

Samsung’s spending over $200 billion and it’s years before any extra capacity makes a dent in today’s problems.

This is where we reiterate Zach Scheidt’s sage advice from last week. Protection is found in metals, real estate and blue chips. We’ll get micro on this topic on Friday…

Now let’s check in on the markets this morning...

Market Rundown for Wednesday, Aug. 25, 2021

At writing, the S&P 500’s flat for the morning.

Oil’s up a third of a percent at $67.75.

Gold is down 0.80% at $1,794.

Bitcoin’s off 3.48%, going for $47,465.

More Friday. Thanks for reading.

Send your questions to TheRundownFeedback@StPaulResearch.com

For The Rundown,

Aaron Gentzler
Editor, The Rundown
TheRundownFeedback@StPaulResearch.com