With each new economic data that is known, the drums of recession in the US and Europe intensify. What the experts do not seem to be so clear about is when inflation will peak and begin to fall. In the opinion of Michael Burry, known for predicting the financial crisis of 2008, the price escalation could last for years.
According to the founder of Scion Asset Management and a prolific tweeter, inflation would remain high over time due to disruptions in the supply chain, the invasion of Ukraine, and the possible consequences of China’s tensions with Taiwan. To which is added that “labor shortages and the restructuring of the global supply chain raise the floor of inflation in the long term, even when the bullwhip effect goes down to that extreme,” said the fund manager who inspired the 2015 movie The Big Short in the message he posted on Twitter, which he later deleted.
The bullwhip effect that Burry refers to occurs when companies in the supply chain experience a distortion between perceived demand and actual sales, causing inventory levels to suffer great volatility, according to The New York Post.
In the deleted tweet, the eccentric fund manager included a Bloomberg article on “onshoring”, a trend that is taking place among US companies and consists mainly of betting on local production instead of relocating to third countries. In the last year, the construction of factories in the US has increased by 116%, according to Dodge Construction Network. The goal is to avoid the disruptions in the supply chain experienced since the start of the pandemic in March 2020.
It’s not the only prediction Burry has made recently. In early June, he, who predicted the 2008 economic crisis, called the stock market the “biggest speculative bubble of all time in all things.” Likewise, he warned crypto investors of the arrival of “the mother of all falls”.
A month later, the S&P 500 is down more than 12%. Despite these figures, the manager does not believe that the storm has already passed. By his calculations, the stock’s decline is still “halfway.” Specifically, he believes that the S & P 500 still expects a 25% drop, according to Fortune.
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