The bullwhip effect could result in the Federal Reserve maybe pausing or even reversing its campaign of interest-rate hikes, according to Hedge fund manager Michael Burry’s tweet.
“The Bullwhip Effect will force Powell to pivot on rate hikes and QT,” tweeted Michael Burry on June 26.
Michael Burry needs a little introduction for those of you following markets and Hollywood movies.
“The Bullwhip Effect will force Powell to pivot on rate hikes and QT”
The famous contrarian investor who forecasted the 2008 financial subprime crisis made huge short bets bagging a fortune. Burry’s short bet inspired the Big Short film, which pulled in $133.4 million at the box office costing $50 million to produce.
Burry has a string of wins under his belt. The latest one was the silent crash of 2022, where he bet against Cathie Wood’s ARK fund with his SARK fund.
Michael Burry’s SARK fund inspired an article entitled, the Alternating Risk On Risk Off Portfolio, an investment strategy for taming wild volatility and generating income in uncertain times.
Michael Burry forecasted the tech wreck of 2022, and now the great contrarian thinker believes that the bottom price level could be in play, due to the Bullwhip effect.
In view of June’s hot CPI 9.1%, markets are seeing the light at the end of the tunnel, peak inflation, and that the Fed will revert to QE in Q1, 2023 as policymakers shift to stimulate an economy deep in recession.
“Michael Burry forecasted the tech wreck of 2022”
WEALTH TRAINING COMPANY
What is the Bullwhip Effect?
The bullwhip effect is a supply chain phenomenon describing how small fluctuations in demand at the retail level can cause progressively larger fluctuations in demand, at the wholesale, distributor, manufacturer, and raw material supplier levels. The effect is named after the physics involved in cracking a whip.
So the Just In Time System relies on a chain of communications through the supply chain. The price mechanism and fluctuating prices trigger signals to retailers, wholesalers, and commodity producers to change their supply levels.
“what happened in the great global lockdowns, production was shut down. Meanwhile, demand was stimulated, and the stimuli cheques created artificial demand” – Wealth Training Company
So what happened in the great global lockdowns, production was shut down. Meanwhile, demand was stimulated, and the stimuli cheques created artificial demand.
So in an artificial environment of booming demand and collapsing supplies, that created shortages leading to price hikes. The price hikes communicated along the supply chain, so retailers ordered more stock, wholesalers kept even more inventory than usual to keep up with retail demand, and commodity producers ramped up their production. But with artificial demand cuts, we are in the glut period, where everyone along the supply chain is overstocked.
The crux of Michael Burry’s bullwhip effect is that deflationary prices in non-essential goods, will send CPI lower
Maybe then, with inflation sinking, and the economy tanking, central banks will revert to expansionary monetary policy, which would put a support price under risk assets.