Michael Burry: You Won't Believe What is About to Cause a MASSIVE Deflationary Bust

TL;DR

Michael Burry warns of a potential deflationary bust caused by the decelerating money supply due to the Federal Reserve's quantitative tightening, leading to a decline in inflation and potential stock market volatility.

Transcript

deflation is coming I'm your host Steve Van Meter and thanks for joining me today and you're not going to believe what Michael burry says is about to cause a massive deflationary bust the seller of Bloomberg we picked today story up with a headline that bury waves off deflation angst only to backtrack a bit later as he warns a potential price shock... Read More

Key Insights

• 📉 Michael Burry, famous investor, warns of a potential deflationary bust caused by a drop in the money supply as a result of the Federal Reserve's quantitative tightening.
• 📈 Historical data shows that when the money supply decelerates, inflation tends to flatten out or trend lower, contradicting Burry's claim.
• 💵 The stock market may be the only area where deflationary effects are seen as the money supply falls, but the relationship between the stock market and the money supply is not consistent.
• 💰 The velocity of money is currently low due to quantitative tightening, whereas in the 1970s it remained relatively stable. This suggests that inflation is unlikely to rise significantly.
• 💹 The yield curve inversion indicates that the Federal Reserve might need to cut rates in order to avoid a deflationary bust, as seen in historical periods of inversion.
• 📊 Rising treasury yields can negatively impact new orders, potentially leading to a recession and affecting the real estate market and mortgage industry.
• 🌍 Central bankers are showing signs of panic as bond yields fall, threatening financial stability and potentially leading to a global depression.
• 💼 The Richmond Fed's Regional Survey reveals a contraction in manufacturing purchase orders, which could indicate a future increase in layoffs and further economic decline.

Questions & Answers

Q: How does the Federal Reserve's quantitative tightening affect the money supply?

The Federal Reserve's quantitative tightening involves selling off bonds in its portfolio and returning the money to banks, which decreases the money supply. This decrease in the money supply is a significant factor in decelerating inflation.

Q: What is the impact of the decelerating money supply on inflation?

When the money supply decelerates, inflation tends to either flatten out or trend lower, suggesting a correlation between the two variables. This contradicts Michael Burry's belief that rising velocity of money will keep inflation high.

Q: How has the stock market historically reacted to changes in the money supply?

While there may be some correlation between the money supply and stock prices, it is not as strong as other factors. Sharp declines in the money supply have been observed alongside both market downturns and increases, suggesting that the impact of the decelerating money supply on the stock market may vary.

Q: What role does the yield curve play in predicting deflationary pressures?

The yield curve, particularly periods of inversion, can provide insights into potential deflationary pressures. When the yield curve inverts, indicating expectations of economic contraction, there is a correlation with a peak in consumer prices followed by a decrease. The current inversion suggests a likely path for inflation to the downside, potentially leading to a deflationary bust.

Q: How might rising treasury yields affect the real estate market?

Rising treasury yields, particularly mortgage rates, can impact the real estate market. Higher mortgage rates can reduce demand and potentially lead to another housing crisis. The impact of high yields on the mortgage industry and the overall health of the real estate market remains uncertain.

Q: How is the Bank of England responding to concerns about stability and dysfunction in the bond market?

The Bank of England has stepped back into the bond market to restore stability amid concerns of collateral calls and potential investor sell-offs. The central bank's plan to buy long-term securities and delay the start of actively selling existing bond holdings indicates a shift towards preventing further dysfunction and potential economic damage.

Q: How does policy focusing on inflation rather than unemployment impact the economy?

Policymakers' emphasis on aggressive posturing about inflation, rather than addressing unemployment prospects, can lead to a delay in policy reversal. This delay could result in negative sentiment persisting and potentially leading to layoffs and further economic impact before policy turns around.

Summary & Key Takeaways

• Michael Burry warns of a potential deflationary bust caused by the decelerating money supply due to the Federal Reserve's quantitative tightening.

• The correlation between the money supply and inflation suggests that when the money supply decelerates, inflation tends to flatten out or trend lower.

• While there may be a relationship between the money supply and stock prices, it is not as strong as other factors, indicating that deflationary effects might be primarily seen in the stock market.