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Michael Burry’s predictions have all come true. The worst collapse in decades has now begun. Even the chart looks like a heart attack. But this is just the beginning of a much more terrifying crash. According to Burry, we’re not even close to the bottom. There are three remaining factors that are going to cause America’s collapse to be much worse than the 2008 recession. Michael Burry has sold almost all of his stocks because of these three reasons. You will be shocked at what he has to say. Thanks to Public.com for sponsoring this video, an investing platform that helps people be better investors, but more on that later.
Michael Burry is frequently criticized for only betting on crashes. But while he mainly predicts market crashes, his track record is practically perfect. Burry detailed his predictions in a list: “Crypto crash. Check. Meme crash. Check. SPAC crash. Check. Inflation. Check. 2000. Check. 2008. Check. 2022. Check.” The first reason is that inflation is about to come back in a frightening manner. The Federal Reserve is adamant about raising interest rates to fight inflationary pressures. Fed chair Jerome Powell recently announced a 75 basis point rate hike, or a 0.75% increase in interest rates. The consumer price index, or CPI in short form, has been decelerating recently, meaning that inflation is slowing down. This is also known as disinflation, which is when the inflation rate slows down over the short term. It would be logical to assume that the recent disinflation is a result of the Fed’s rate hikes, but Burry thinks otherwise. He believes that disinflation is a result of human behavior. Burry explained how “Inflation appears in spikes. When the spike is resolving, it won’t be because of Biden or Powell. It will be because that is the essence, the nature of inflation. It resolves, fools people, and then comes back. When it comes back, neither the POTUS nor the Fed will take credit”. Attached to the tweet is a chart that dates all the way back to the 1940s. The chart shows inflation going in cycles in the 1940s and the 1970s when inflation was prevalent. You can see how after the first inflation spike, there tends to be a second larger one. This is because, during the first inflationary crash, the economy always collapses. This compels the government to start printing money again to start saving the economy. Unbeknownst to the government, inflation will come back roaring again in a terrifying fashion. This is due to a concept called the velocity of money. The velocity of money is the rate at which all transactions in the economy occur. This is measured by taking the GDP and dividing it by the money supply. For instance, let’s say there was an economy that only transacted pizza. In this theoretical economy, 3,000 pizzas are sold in one year. If the price of one pizza is $10, then we can calculate the total GDP by multiplying 3,000 pizzas by $10 or $30,000. Let’s say the total money supply is $10,000. To find the velocity of money, we need to divide $30,000 by $10,000 to get 3. The average US dollar was used in 3 transactions throughout one year, which is the velocity of money. While the money supply increased drastically over the past few years, the velocity of money hasn’t picked up much until now. Burry warned, “Velocity is nominal GDP/Money Supply (M2 here). Quantitative Tightening and higher rates starting to push M2 down. Yet we are seeing a tick up in velocity, emerging from narrative obscurity. In 1978-79, rising velocity trumped falling money supply to drive inflation higher and higher. Redux would shock.” Attached to the tweet is a graph showing the velocity of money in relation to the money supply. The white line shows the velocity of money, which has gone from 2.2 in the 1990s to about 1.1. This means that the average dollar is only transacted 1.1 times every year versus 2.2 in the past. You can see how recently, the velocity of money has started to pick up. If the velocity of money continues increasing, then inflation will be stronger than ever. Another graph that Burry attached showed the cyclical nature of inflation. In the 1980s, inflation came back roaring to over 15% year over year. Burry detailed this concept further by saying, “Realize inflation has always been peaky. And it never has been just one peak. So it resolves to a brief deflation (40-50s), or disinflation (70s), and comes back. An inflationary cycle generally spans years, and inflationary eras have spanned decades. Human nature.” Attached to the graph was the CPI’s year over year changes and the US GDP yearly growth rate. You can see how CPI and GDP growth rates are correlated. When the CPI goes up, the GDP tends to go up as well before crashing with the CPI. This means that as prices crash in the coming months, so will the economy.