‘The Big Short’ investor Michael Burry believes that even though inflation has peaked, it is not the last peak of this cycle as a recession would lead to further government stimulus, leading to another spike in price rises.
What Happened: “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 tweeted.
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Two weeks ago, consumer confidence data revealed that 12-month inflation expectations fell to their lowest level since September 2021, at 6.7%. Back then, markets had cheered the positive data although on a year-to-date basis, the persistent rate hikes by the Federal Reserve created significant sell-off in markets across the spectrum.
The SPDR S&P 500 ETF Trust SPY has lost close to 20% in the last one year while the Vanguard Total Bond Market Index Fund ETF BND shed over 14%.
It’s not just Burry who has sounded out the warning of a potential recession. Nobel laureate Joseph E. Stiglitz had said in a tweet that central banks have deliberately set themselves on a path to cause a recession in the name of taming inflation.
Former Treasury Secretary Larry Summers had said that although the economy looks in better shape at present, the greater risk is that it will head towards recession at some point during 2023 — and inflation may still be too high for many people.
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