- If Micheal Burry is right, the Federal Reserve or the FED must reverse its policy of quantitative restrictions and increased interest rate hikes.
- According to Burry, most retailers have so much inventory that the cost of storing it is draining their resources.
- There have even been instances where customers have gone to return their purchased items; companies asked them to keep things with them along with the amount compensated.
Micheal Burry feeling a crash…again
We all know Micheal Burry as the goofy, introverted genius from the movie “The Big Short” played by Christian Bale. Well, people wanted part 2 of this movie. Now it looks like it could happen.
Micheal Burry, a famous and legendary investor and the head of Scion Capital Management, recently predicted another big stock market crash, this time in the retail and warehousing industry.
If Micheal Burry is right, the Federal Reserve or the FED must reverse its policy of quantitative restrictions and increased interest rate hikes.
The Federal Reserve is currently trying to manage inflation at 8.6%, the highest level in 40 years, by aggressively raising interest rates. The Federal Reserve agreed in May to raise interest rates by 0.5%, the most since 2000. In June, another rate hike of 0.75% brought rates back to a range between 1. 5% and 1.75%.
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The whiplash effect
Micheal Burry’s words carry a lot of weight because of his market predictions in 2008: He recently took to Twitter with the words, “Just keep your returns: Stores pay you not to report unwanted items.”
According to Burry, most retailers have so much inventory that the cost of storing it is draining their resources. These retailers include:
- Target
- walmart
- Difference
- American Eagle Outfitters
There have even been instances where customers have gone to return their purchased items; companies asked them to keep things with them along with the amount compensated.
Burry said this was an ideal scenario of the “whiplash effect,” which is a supply chain phenomenon described by Micheal himself:
“This retail supply glut is the Bullwhip effect. Google it. Understand for your investment efforts. Deflationary impulses from this -> CPI disinflation later this year -> Fed will inverse on rates and QT -> Cycles.
Now, because inflation rates go up, the value of the dollar goes up, and so does the purchasing power of the public.
This is the reason why retail stores are not able to sell many units.
This adds to inventory, making it even more of a deficit profession for them.
Retailers have no choice but to sell their reserves at a price well below the price at which they should be sold.
