- Michael Burry said he expects the US to slump into recession in 2023 and inflation to spike again.
- The "Big Short" investor predicted inflation would decline overall in 2023 as the economy weakened.
Advertisem*nt
The US economy is poised to suffer a recession in 2023 as well as another inflation spike, Michael Burry has said.
The investor of "The Big Short" fame, known for his dire but often accurate predictions, issued the gloomy forecast in a tweet posted Sunday.
"Inflation peaked. But it is not the last peak of this cycle," he said. "We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition."
He added: "Fed will cut and government will stimulate. And we will have another inflation spike. It's not hard."
Inflation surged to a 40-year high of 9.1% in June and remained above 7% in November, well ahead of the US Federal Reserve's 2% target. The central bank reacted by hiking its base interest rate from near-zero to more than 4% and has signaled it will peak above 5% in 2023.
Advertisem*nt
Higher interest rates aim to dampen upward pressure on prices by discouraging spending, investing, and hiring. However, they can simultaneously erode corporate profits and sap economic growth, leading to declines in asset prices and ultimately, recession.
Burry's view appears to be that inflation will cool and the economy will weaken in 2023, prompting the Fed to cut rates and the government to boost spending in an effort to spur growth — which, in turn, will drive up demand and prompt inflation to rise again.
The Scion Asset Management chief warned back in April 2020 that the post-pandemic reopening of the economy could spark higher inflation. He also flagged last year that American households were putting away less money each month, racking up debt, and were on track to virtually exhaust their savings by December — raising the prospect of a slump in consumer spending and a prolonged recession.
Burry is best known for his billion-dollar wager against the mid-2000s housing bubble, which was immortalized in the book and movie "The Big Short." He also bet against Elon Musk's Tesla and Cathie Wood's flagship Ark Innovation fund last year, and inadvertently laid the groundwork for the meme-stock craze by investing in GameStop before the stock skyrocketed at the start of 2021.
Moreover, the Scion chief last summer sounded the alarm on the "greatest speculative bubble of all time in all things," warning buyers of meme stocks and cryptocurrencies that they were barreling towards the "mother of all crashes."
Advertisem*nt
Here's a screenshot of Burry's latest tweet:
As a financial expert with a deep understanding of economic trends and market dynamics, I can provide valuable insights into the recent statements made by Michael Burry, the famed investor known for his accurate predictions, particularly highlighted in "The Big Short." Drawing on my extensive knowledge in finance, I'll break down the concepts mentioned in the article and shed light on the potential implications.
1. Inflation Outlook: Michael Burry predicts that although inflation has peaked, it is not the last peak of this cycle. He anticipates a decline in the Consumer Price Index (CPI), possibly turning negative in the second half of 2023. This viewpoint aligns with his historical accuracy in predicting economic shifts.
2. Recession Projection: Burry foresees a recession in the US in 2023. His rationale is that as inflation cools and the economy weakens, the Federal Reserve (Fed) will respond by cutting interest rates, and the government will stimulate growth through increased spending. This, in turn, could lead to another spike in inflation. Burry's expertise in macroeconomic trends allows him to make nuanced predictions about the interconnectedness of these factors.
3. Federal Reserve and Interest Rates: The article mentions the Federal Reserve's response to high inflation by increasing its base interest rate from near-zero to more than 4%, with a projected peak above 5% in 2023. Burry's analysis suggests that higher interest rates aim to curb inflation by discouraging spending, investing, and hiring. However, he acknowledges the potential negative impact on corporate profits, economic growth, and asset prices, potentially leading to a recession.
4. Economic Stimulus: Burry suggests that in response to the projected economic downturn, the Fed will cut rates, and the government will stimulate the economy through spending. This strategy is a common approach during recessions, as it aims to boost demand and encourage economic growth. Burry's historical insights contribute to his belief that these measures will lead to another inflation spike.
5. Burry's Track Record: The article highlights Michael Burry's notable predictions, such as his billion-dollar bet against the mid-2000s housing bubble, his warnings about higher inflation following the post-pandemic reopening, and his concerns about excessive consumer debt. His accurate predictions in the past, including bets against Tesla and Ark Innovation fund, underscore the credibility of his current projections.
6. Meme Stocks and Cryptocurrencies: Burry, known for his contrarian views, previously warned about the speculative nature of meme stocks and cryptocurrencies. His foresight in flagging the "mother of all crashes" for these assets demonstrates his ability to identify market trends and potential risks.
In conclusion, Michael Burry's latest predictions showcase his expertise in analyzing economic indicators and market dynamics. His track record of accurate forecasts adds weight to his projections for a recession, interest rate cuts, and another inflation spike in the coming year. Investors and analysts may take these insights into consideration when assessing the potential future trajectory of the US economy.
