Everything is obvious in hindsight, so we should perhaps hesitate before we insist that policymakers and corporate executives “should’ve known better.”

When we look back on 2021’s economy, we see stimulus-driven demand colliding with lingering supply chain constraints to create a “too much money” chasing “too few” goods and services conjuncture.

After the fact, it’s all too easy to chastise politicians, monetary policy and the C-suite. In the latter’s case, the mistake was extrapolating pandemic dynamics into the indefinite future.

It “should’ve been obvious,” we insist, two years later, that people can only buy so much “stuff.” Relatedly, tech and comms services executives “should’ve known” that people would eventually venture back out into the real world, at the expense of “screen time.” And so on.

Of course, we could all say the same thing about mistakes we’ve made in our own lives.

But mistakes do have consequences, and one of the consequences from the extrapolation mentioned above is a legacy of elevated inventory ratios, which, if you ask Wall Street’s most recognizable bear, is just one more reason to doubt that America’s (currently shallow) earnings recession is over.

“One of the consequences of the pandemic boom is that many companies had to scramble for product. As a result, they over-ordered based on the expectation that the boom would continue,” Morgan Stanley’s Mike Wilson said, in his latest. “It did not, demand moderated, and now they are left holding much higher inventory (at high prices) than is optimal.”

The figure above is still quite extraordinary, and for Wilson, it’s a problem. The inventory bloat will ultimately “serve as just another drag on elevated earnings forecasts,” he said.

Naturally, there’s a soft landing case for this too. Wilson sketched the contours. “The hope is that [companies] can slowly de-stock this inventory at a reasonable price,” he wrote.

This probably goes without saying, but Wilson doubts it. Instead, softening demand will likely prevent de-stocking, or at least de-stocking at anything like attractive prices. Remember: Companies were desperate to meet consumer demand in 2021, which not only meant over-ordering, but also paying up for scarce product and in some cases double-ordering.

Note from the table above that this isn’t a sector-specific issue. It’s everywhere.

Wilson suggested there’s only one way out. Or, actually, two ways out. “Companies will likely have to discount that inventory or write it down,” he remarked.