U.S. inflation may be receding for now, but investors should brace for another “spike” in the not-too-distant future, according to Scion Asset Management founder Michael Burry, who posted the warning in a New Year’s Day tweet.
The hedge-fund portfolio manager, who shot to fame thanks to Michael Lewis’s book on the 2008 financial crisis, “The Big Short”, expects the dynamics driving the next inflationary wave will be similar to the previous one. The Federal Reserve will cut interest rates while the federal government doles out fiscal stimulus in response to a recession that’s expected to begin later this year.
Inflation has receded in recent months, although the decline has not been swift enough to prompt the Fed to stop raising its policy interest rate at the fastest pace in decades. The central bank has signaled that it doesn’t expect to cut rates until 2024.
“Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition. Fed will cut and government will stimulate. And we will have another inflation spike. It’s not hard,” Burry said.
Burry anticipated as early as February 2021 that unprecedented fiscal stimulus in response to the COVID-19 pandemic would trigger persistent inflation, even as the Fed insisted that accelerating price pressures would be “transitory.” Consumer-price inflation eventually peaked at its highest level in 41 years during the summer of 2022, according to CPI data.
He also warned that “the mother of all crashes” would tank assets from stocks to cryptocurrencies and beyond — a call that has been vindicated by the nearly 20% drop in the S&P 500
and more than 30% drop in the Nasdaq Composite
Some of the most speculative technology stocks, like those held by the Ark Innovation ETF
fell even harder, while bitcoin
shed more than two-thirds of its value compared to its peak.
Burry shot to fame after he used credit-default swaps to bet against the U.S. housing market in 2007, a trade that was chronicled in Michael Lewis’s book “The Big Short.” The book was eventually made into a popular movie, where Burry was played by actor Christian Bale.
The enigmatic investor typically avoids speaking to the press, and until last month regularly deleted his tweets. He said in early December that he would start leaving his tweets up because Twitter Inc. owner Elon Musk “has my trust.”
After liquidating nearly his entire portfolio, Burry began buying some individual stocks during the third quarter, according to a filing with the Securities and Exchange Commission.
According to the latest 13-F filing, Scion’s portfolio included prison stock GEO Group
which he continued to hold even after selling shares of Alphabet Inc.
and a handful of other names. Data from FactSet showed he also owned stocks trading in South Korea and Japan.