Inflation, swelling of fuel stocks

  • Michael Burry says rising retail inventories generally reflect inflation and overstocking.
  • Investor ‘The Big Short’ expects consumer demand to decline as higher prices erode savings.
  • Burry predicts that slowing inflation will prompt the Federal Reserve to start cutting interest rates again.

Walmart, Target and other major US retailers are drowned in inventory, and are preparing to slash prices to get rid of their mountains of unsold goods. The skyrocketing cost of living and overstocking are likely to blame for the bloat, claimed Michael Burry in a tweet now deleted In Monday.

“When you see inventory builds, think of two things,” Burry tweeted. “Just in Case” Supply Chain Management and Inflation.”

Investor of ‘The Big Short’ fame added that there was “a nuance in everything” and urged his followers not to oversimplify his comments, or assume that the stories on his often short and cryptic tweets fully captured his point of view on a subject.

Burry previously attributed the rise in inventory to the “whiplash effect,” when retailers, manufacturers and suppliers overreact to a slight increase in consumer demand. They anticipate even more demand that fails to materialize, leading to oversupply.

Similarly, “just in case” supply chain management refers to companies that produce and stock more goods in case more orders arrive. It’s a game of the “just in time” approach, when companies set up supply chains so that products are only produced and shipped to retailers just before they are sold, minimizing inventory and the associated costs.

Meanwhile, inflation has hit a 40-year high in recent months, reflecting painful increases in food, fuel and housing prices. Burry warned that American consumers are saving less, racking up debt and are on track to virtually deplete their savings by Christmas.

The head of Scion Asset Management expects this trend to weaken consumer demand and see retailers cut prices to reduce inventory, which will lead to a slowdown in inflation by the end of this year. That will clear the way for the Federal Reserve to back down and start stimulating the economy again, he said.

On the other hand, Burry suggested that a chronic shortage of blue-collar workers, a move towards offshoring production and a broader overhaul of global supply chains post-pandemic would support higher inflation in the long run.

Burry rose to fame after his billion-dollar gamble against the mid-2000s housing bubble was chronicled in the book and film “The Big Short.”

He’s also known for inadvertently sparking the meme stock boom by investing in GameStop, placing high-profile bets against Elon Musk’s Tesla and Cathie Wood’s flagship fund Ark last year, and tweeting terrible warnings about dangerous asset bubbles and devastating market crashes.

Read more: A Michael Burry expert breaks down what makes the “Big Short” investor special. It also revisits Burry’s iconic bet against the housing bubble and its GameStop, Tesla and Ark bets.

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