In the recent market euphoria, Michael Barry has to come out as a killer.
Additionally, he chose “Cassandra BC” as the handle for his microblogging website Twitter. This suggests that he doesn’t mind frequently going against the prevailing trend stream if he ultimately decides it’s right.
The major financial indicator closed in green for the fourth week in a row on Friday 12th August. The benchmark index, the S&P 500, is up 134.96 points, or 3.3% over the course of the week. The Dow Jones rose 957.58 points (2.9%) and the Nasdaq rose 389.63 points (3.1%).
The reason for this euphoria is that investors are now convinced that the Federal Reserve will be less aggressive in raising interest rates to combat the highest inflation in 40 years.
Bureau of Labor Statistics data on Aug. 10 showed that US inflation slowed particularly last month, suggesting a pause in the Fed’s interest rate hikes.
The headline consumer price index in July is estimated to have risen 8.5% from last year, down from a pace of 9.1% recorded in June and well within the street’s consensus forecast of 8.7%.
On a monthly basis, inflation was flat compared to June’s 1.3% gain and May’s 1.1% gain, again below the street forecast of a 0.2% acceleration, according to the BLS.
Buoyed by these figures, investors are encouraged to ignore negative signals such as comments made after the inflation figures by Fed members suggesting their battle against rising prices is far from over. I like it.
Federal Reserve Bank of Minneapolis Governor Neil Kashkari said at the Aspen Idea Conference on Aug. 10 that the central bank is “far from declaring victory” and that the Fed Funds rate should be closer to 4% by the end of the year. I believe there is .
Inflation has dominated the market debate in recent weeks. Many experts fear that aggressive rate hikes by the Fed will likely trigger a hard landing for the economy. Fundamentally, if central banks continue to raise interest rates this strongly, a recession is inevitable.
Burry warns those who think the economy is probably out of trouble. In a recent cryptic tweet, an investor explains that there is another fact that could cause future problems for the economy.
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The investor, whose bet on the housing market was portrayed in the 2015 movie The Big Short, believes rising consumer debt poses a serious risk to the economy.
“Net consumer credit balances are rising at a record rate as consumers choose violence rather than cut spending in the face of inflation,” legendary investor said Aug. 12. Posting on Twitter, a Bloomberg chart shows US consumer borrowing rose $40.2 billion in June, up $1 billion month-on-month. It was the second-largest increase ever, according to Federal Reserve data.
“Remember the over-saving problem? No more. COVID helicopter cash teaches people to spend again and it’s addictive. Winter is coming,” Burry added. I deleted the tweet, as I usually do with my posts.
Barry seems to be referring here to the stimulus checks many Americans received from the federal government to avoid economic collapse when the covid-19 pandemic paralyzed economic activity.
He seems to suggest that households continue to spend money without looking, and this is having an impact on savings as well. In doing so, Americans find themselves in precarious financial situations, and inflation is still a drag on the economy.
Some experts say stimulus has contributed to US inflation.
“Winter is Coming” appears to be a reference to HBO’s series Game of Thrones. The characters used this phrase as a warning.
As is often the case with Barry, it’s hard to see what he specifically means. In July, however, he hinted that he foresaw a consumer credit crunch.
Credit and debit card spending, which accounts for more than 20% of total payments, rose 8% year-on-year in July, with card spending per household rising 5.3%, moderating from a 5.7% rise in June. . Report on Consumer Payments for July by the Bank of America Institute, the bank’s internal think tank.
Consumer sentiment soared to 55.1 in August, well above the street consensus of 52.5 and nearly four points higher than July’s figure.
Burry also emphasized the difference with most investors by warning that the current recovery in the Nasdaq index, which includes most technology groups, does not mean that confidence has returned.
“The Nasdaq is now up 23% from its lows. Congratulations, you have seen an average bear market rally. The average is 23%.Since 2000, there have been two gains of 40% or more, a bear market rally and one gain of 50% or more before the market bottoms out.”