Is Michael Burry right?

Michael Burry has SOLD ALL his stocks.

Burry believes that while we are due for disinflation in the short-term due to inventory builds, higher-than-usual inflation will stick around for the long-term, powered by persistent commodity and labor shortages.   

Burry further believes that poor economic policies from the U.S. government will exacerbate the negative economic impacts of this elevated inflation. As a result, the U.S. economy will plunge into a deep recession. This deep recession, Burry reasons, will lead to a dramatic drop in corporate profits, which has yet to be priced into stocks.

As corporate profits drop over the next 12 months, Burry thinks stocks will collapse.

Burry’s saying that if inflation persists, stocks are doomed. We’re bullish, and we entirely agree with that thesis. If inflation persists, stocks and bonds, cryptos, and every other financial asset out there are doomed.

But the bulk of evidence today suggests inflation is meaningfully decelerating. Inventory levels are rising. Commodity prices are crashing. Energy costs are falling. Home prices are starting to drop. Wage growth is slowing.

All the core drivers of inflation are trending in the right direction. If these trends persist, stocks aren’t going to crash – they’re going to soar.

(adapted from Luke Lango)