As the US inflation rate reached a 40-year high, the legendary investor who astoundingly made nearly a billion dollars by betting against the US housing market in the mid-2000s, Michael Burry, has once again raised the alarm. This time, his predictions for 2023 are dire.
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Brace yourselves, as Burry forecasts a massive spike in inflation that will send the US economy plummeting into a full-blown recession by 2023. Are you prepared for the economic turbulence that lies ahead?
Before we go into more details, let’s take a moment to discover the impressive background of Michael Burry, the man behind the latest warning on US inflation in 2023.
Not only is he a successful American investor who founded the hedge fund Scion Capital using only a small inheritance, but he’s also a highly skilled neurologist. Investors around the world know him as one of the few people who saw the subprime mortgage crisis coming and acted on it.
By shorting the mortgage bond market through collateralized debt obligations or CDO in 2007, Burry was able to make a massive profit of $800 million, with a personal take of $100 million and a $700 million return for his investors.
With a track record like that, it’s no wonder many people might be eager to hear what he has to say about the future of the US economy.
Michael Burry’s Latest Warning on U.S. Inflation 2023
Burry’s latest warning and prediction on the US economy is gaining even more credibility with a December 2022’s survey of 38 economists conducted by Bloomberg, who now see a 70% chance for a recession in 2023, up from 65% in November
The economists forecast that consumer spending, which makes up two-thirds of GDP, will barely increase in the middle six months of the year, with median estimates calling for GDP growth of only 0.3% in 2023.
Burry says that inflation will peak and that the Federal Reserve, which has raised interest rates to a level not seen since the 2008 financial crisis, will pivot and cut rates, while the federal government should announce a stimulus package.
This will result in another inflation spike, similar to what happened during the COVID-19 pandemic.
What Happened During the COVID-19 Pandemic
During the COVID-19 pandemic, many countries experienced a significant increase in inflation due to various factors, such as supply chain disruptions and increased demand for certain goods, including personal protective equipment and household items.
The combination of these factors with monetary policy measures from central banks, such as injecting more money to support their economies, resulted in a reduction in the supply of goods and an increase in demand, leading to higher prices.
This created a situation of inflation, causing the cost of living to increase and the purchasing power of people’s money to decrease.
The inflationary spike was temporary and resulted from the unique circumstances of the pandemic.
2023 is a Different Scenario
According to Michael Burry, the inflation rate has reached its peak, however, this will not be the last peak of this cycle.
He warns that the Consumer Price Index or CPI, is likely to see a significant decrease in the coming year and may even become negative in the latter half of 2023. Such a decrease in inflation would result in the long-anticipated recession.
The US inflation rate reached a 40-year high of 9.1% in June and has remained above 7% since November. This level is significantly higher than the 2% target set by the US Federal Reserve.
In response, the central bank has taken action by raising its base interest rate from a near-zero position to over 4%, with the expectation that this rate will continue to increase and reach a peak of more than 5% in 2023.
Burry suggests that higher interest rates have the effect of mitigating inflationary pressures by discouraging consumption, investment, and employment.
However, these higher interest rates may also result in decreased business earnings and subdued economic growth, potentially causing a decline in asset prices and a recession.
In 2023, Burry predicts a decrease in inflation and a weakening economy, which he believes will prompt the Federal Reserve to lower interest rates and the government to increase spending to promote growth, thereby increasing demand and potentially leading to a resurgence of inflation.
Other Famous Entrepreneurs See the Same Outcome
Apart from Michael Burry, other famous entrepreneurs and investors, including Jeff Bezos, the founder of Amazon.com and Elon Musk, the CEO of Tesla, also warned about the impending recession.
Elon Musk has predicted a US economic downturn could last up to 18 months, and recommended investors ride it out by conserving cash, avoiding debt, and taking fewer risks. On the other hand, Jeff Bezos advises the American people to slow down on purchasing new items and to hold onto cash as much as possible.
Bank of America Chief Economist Michael Gapen also thinks the U.S. is headed for a recession in 2023, although that outcome is not guaranteed.
he said on Face The Nation. “It’s not baked in. It’s not for certain. We may be able to avoid it, but I would agree that the outlook by most people who sit in the position that I do think 2023 could be a difficult year for the US.”
Michael Burry, predicts a grim future for 2023. He sees a decrease in inflation, a weakened economy, and the likelihood of a recession.
The US Federal Reserve and government may take action to boost growth, which could lead to a resurgence of inflation. It’s a situation to keep an eye on as the year progresses.