'Big Short' investor Michael Burry warns of a massive bubble and epic market crash

[Behappyalways]

We are probably doing a repeat of Mar 2020.... and sad to say the main characters are not out yet ...so it will probably take a while to end.

If you are a value investor and stick to holding stocks ....probably end of the year( a repeat of 2020), your portfolio might be higher than the start. Then one can kinda 'console' himself and 'validate' the buy and hold theory...

But if you adjust your portfolio and holds more cash and deploy when there is bloodshed.... probably at the end of the year, your portfolio will most likely outperform the buy and hold..

A good watch....watch the fed and knows where it is going... don't fight the fed...

22.05.12【豐富│財經起床號】黃詣庭談「恐慌殺盤後，美股航向何方？」
https://m.youtube.com/watch?v=8u0ypTSbMB8

[BlueKelah]

We are probably doing a repeat of Mar 2020.... and sad to say the main characters are not out yet ...so it will probably take a while to end.

If you are a value investor and stick to holding stocks ....probably end of the year( a repeat of 2020), your portfolio might be higher than the start. Then one can kinda 'console' himself and 'validate' the buy and hold theory...

But if you adjust your portfolio and holds more cash and deploy when there is bloodshed.... probably at the end of the year, your portfolio will most likely outperform the buy and hold..

A good watch....watch the fed and knows where it is going... don't fight the fed...

22.05.12【豐富│財經起床號】黃詣庭談「恐慌殺盤後，美股航向何方？」
https://m.youtube.com/watch?v=8u0ypTSbMB8

Rate rise is on track to 3 % by year end but i think the crisis/recession will force FED to maybe backtrack at around 2%. they cant affored to pay interest at more than 2% anyway with so much debt on the books. 

One BIG difference to covid march 2020 is that we have record inflation now aroun 15-20% some countries like Turkey its gone like 70%, out of control. So FED's hands are tied as they cannot loosen much if at all, as inflation is currently 8% plus and they have to respond, with really to be logical, at least a 5 to 8% counter rate rise. We also have almost an oil/commodity crisis with Russian war interrupting supplies.

so it will be downside till FED steps in. I would say probably lows by year end. 

Next FOMC wont be till next month. I reckon fed will just keep quiet until then. Its holiday season in USA anyway, so most investors will likely be sell in may and go away this year lol...

[CY09]

In my view, its quite simple to tame inflation without raising interest rates too high. During 2020, the Fed was doing QE at approx rate of $120 billion per month. So for this QT, just do the same set it at $120 billion per month (or perhaps $200 billion), instead of the $95 billion now.

A QT of this magnitude will have about the same effect as a 1% hike, without increasing interest rates. However, the Fed does not seem intent to expand QT because it affects the stock markets and silicon valley companies. In my opinion, deflating the latter 2 affects the rich disproportionally and the Fed does not want to hurt the rich too much. However, again my view, it will definitely tame inflation which affects all income levels in society--> a 1%-1.25% interest rate environment with aggressive QT will do the trick.

[BlueKelah]

In my view, its quite simple to tame inflation without raising interest rates too high. During 2020, the Fed was doing QE at approx rate of $120 billion per month. So for this QT, just do the same set it at $120 billion per month (or perhaps $200 billion), instead of the $95 billion now.

A QT of this magnitude will have about the same effect as a 1% hike, without increasing interest rates. However, the Fed does not seem intent to expand QT because it affects the stock markets and silicon valley companies. In my opinion, deflating the latter 2 affects the rich disproportionally and the Fed does not want to hurt the rich too much. However, again my view, it will definitely tame inflation which affects all income levels in society--> a 1%-1.25% interest rate environment with aggressive QT will do the trick.

Inflation is caused mainly by expansion of M2 monetary supply. 

In 2020 FED did not just expand their balance sheet by doing QE of 120b ( actually i think it was 80b a month, not that that matters ) The US gov also have a big multitrillion $$ deficit to fun the stimilus programs and checks and infrastructure builds etc...

There were trillions injected into the economy for 2020 and also 2021. If you refer to the chart below the expansion of M2 Money supply from just ~15.5trillion in Jan 2020 to 21.8trillion in march 2022. Thats an addition of 6.3trillion++ in the span of 2 years. thats almost the same amount as the amount from the past decade jan 2010 to jan 2020(~7trillion) Thats roughly 40% over 2 years, so roughly 15-20% inflation per year over next 1.5 to 2 years as this wall of money chases limited goods. USA CPI is misleading as if they used their original CPI calculations from decades ago, it would be roughly 10-15% at least. you will also notice most food/goods will have corresponding price increases of at least 10%-15%, even in singapore over next couple years if not already.

M2 money supply chart link below.
https://fred.stlouisfed.org/series/M2SL

If you expand the money supply by so much, in such a short span of time you gonna get massive inflation. --> basic macro economics which the economists at FED are all paid millions but "no one expected it" according to one of the FED people trying to push the blame on. [note the rapid expansion during the 1970s from 600billion to 1.5 trillion, almost 200% over 10 years, thus they had 15-20% inflation and needed a 20% interest rate in early 1980s by their new FED chair to finally control inflation]

Fed can reverse the QE with QT which they have broadcast intention to do so by reducing balance sheet. However when market crashes there will be no one to buy up these junk debt and other securities that FED has bought over the years. FED balance sheet now 8,94trillion https://www.statista.com/statistics/1121...-timeline/

With the negative CPI signalling start of a possible recession, FED will be unable to do any QT at all i reckon. And it cant hike rates above 2%, unlike in 1980s where it could afford to pay its debts at 20% interest rate.. which means it will just let the country go to stagflation and just try to inflate away the debt and prop up the USD. 

well who knows, perhaps trump will win the year end election again and we start seeing some civil unrest/riots/conflict in usa due to high inflation.

[CY09]

Hi Bluekelah,

Thanks for the chart. If monetary supply is creating so much problem, it should be reined back and QT does exactly that. Will be good if the Fed can just delete away 7 trillion out of 8.94 trillion in a 2 year span. That will reduce inflation.

There will be recession due to QT, however, this was excess cash created by QE to starve off 2 recessions. So pretty okay to have 1 cycle of recession with 7 trillion gone

[BlueKelah]

Hi Bluekelah,

Thanks for the chart. If monetary supply is creating so much problem, it should be reined back and QT does exactly that. Will be good if the Fed can just delete away 7 trillion out of 8.94 trillion in a 2 year span. That will reduce inflation.

There will be recession due to QT, however, this was excess cash created by QE to starve off 2 recessions. So pretty okay to have 1 cycle of recession with 7 trillion gone

If they do 7 trillion QT it wont cause a recession, its gonna cause a DEPRESSION. Thats something no one in FED or white house wants to happen. It will cause the US and the rest of the world to enter a decade of high unemployment and depression plus deflation. 

WHat fed wanna do is to hike rates + thighten slowly --> engineer a "SOFT landing", but they are way behind the curve now, they should have dont QT and rate hikes last year. raising to 1 or 2 % now is not going to combat 8% inflation. Though the april CPI went down a bit to 8.3% that doesnt mean the may inflation wont shoot back up to 9 or 10%. Persistent inflation is a scary beast.

Its gonna get ugly either way. they either tighten and crash the economy now, OR they can continue being accomadative and risk hyperinflation and destruction of the dollar. I reckon they have to protect the USD at all cost, so high chance we are going to see some big rate hikes and QT to combat hyperinflation. They are already blaming the high inflation on the Russian war.

[Behappyalways]

There are two types of inflation happening now. One which the fed by raising interest rates and QT is hoping to curb it by reducing demand. The second type of inflation is degloblisation. It started when US and China get into trade war and especially when US starts to target specific Chinese industries and companies. (There are signs that US might want to end the tariff war with China to slow down inflation but there is some political consideration especially with mid term election soon) But nevertheless the degloblisation is the trend now as we can see Chinese companies forced to delist from the US market. The Ukraine conflict also adds to the degloblisation as Russia are further push out of the 'global' economy. What is the consequence of this degloblisation.....one of the consequence is higher cost(inflation) and also higher probability of conflicts. Higher cost is that factories and plants are no longer set up in places where one can achieve lowest cost of production. For example semiconductor plants, if it is made in US, then the cost of the semiconductor is much higher than made in Taiwan and this higher cost will then feed to other industries that use it....like cars, electronic products and etc etc...

We probably will have to get use to higher cost of living now compared to the past 30 years. And to add with the conflict in Ukraine, there is a shortage of fertilizers that might lead to reduced food production in the 2nd half of the year. We probably will see much higher food costs in the 2nd half and the higher food costs will also lead to higher cost in many other industries like for example workers will want higher wages.

Life will be hard for many especially salaried low wage workers and I can empathize with them... And we will see a lot of unstable governments and countries as inflation continues to surge.

For those who have a lot of cash waiting to deploy ...sit tight the main dishes is yet to serve ....what you are seeing is just peanuts and tea which one is serve in the restaurant before the main dishes are ready.

台積電赴奧勒岡設晶圓廠 美國做半導體比台灣貴50%! 成本.人才挑戰重重 張忠謀直言: 超浪費 陸行之:政府補助是關鍵│記者 劉馥慈 孟國華│【台灣要聞】20220422│三立iNEWS
https://m.youtube.com/watch?v=ZsPRAj905j8&t=12s

[BlueKelah]

There are two types of inflation happening now. One which the fed by raising interest rates and QT is hoping to curb it by reducing demand. The second type of inflation is degloblisation. It started when US and China get into trade war and especially when US starts to target specific Chinese industries and companies. (There are signs that US might want to end the tariff war with China to slow down inflation but there is some political consideration especially with mid term election soon) But nevertheless the degloblisation is the trend now as we can see Chinese companies forced to delist from the US market. The Ukraine conflict also adds to the degloblisation as Russia are further push out of the 'global' economy. What is the consequence of this degloblisation.....one of the consequence is higher cost(inflation) and also higher probability of conflicts. Higher cost is that factories and plants are no longer set up in places where one can achieve lowest cost of production. For example semiconductor plants, if it is made in US, then the cost of the semiconductor is much higher than made in Taiwan and this higher cost will then feed to other industries that use it....like cars, electronic products and etc etc...

We probably will have to get use to higher cost of living now compared to the past 30 years. And to add with the conflict in Ukraine, there is a shortage of fertilizers that might lead to reduced food production in the 2nd half of the year. We probably will see much higher food costs in the 2nd half and the higher food costs will also lead to higher cost in many other industries like for example workers will want higher wages.

Life will be hard for many especially salaried low wage workers and I can empathize with them... And we will see a lot of unstable governments and countries as inflation continues to surge.

For those who have a lot of cash waiting to deploy ...sit tight the main dishes is yet to serve ....what you are seeing is just peanuts and tea which one is serve in the restaurant before the main dishes are ready.

台積電赴奧勒岡設晶圓廠 美國做半導體比台灣貴50%! 成本.人才挑戰重重 張忠謀直言: 超浪費 陸行之:政府補助是關鍵│記者 劉馥慈 孟國華│【台灣要聞】20220422│三立iNEWS
https://m.youtube.com/watch?v=ZsPRAj905j8&t=12s

I see inflation in a different way. Supply/demand economics may look like they affect inflation but this is not really true. 

For example, decades ago OPEC caused a couple of oil crisis by reducing supply. in Japan, Oil prices went up and inflation went up in the first instance. However the second oil crisis Oil prices went up but inflation did not go up. WHY? because the preceding periods before those events, one had big monetary supply increase and the second one did not. 

So whilst deglobalisation can affect supply chains and cause many cheaply made individual goods to become harder to obtain and hence increase prices locally, in USA in the short term, in a normal environment where there are no excess printed money supply to chase those goods, there will be demand destruction, and prices will balance out. as prices rise this will encourage local production which will then bring prices down as well.

This is a good video where the professor talks about inflation and relationship to things like high oil prices etc.. forward to 9.20min if you just want to hear the part about Japan having no inflation despite high oil prices.
https://www.youtube.com/watch?v=cM1nhknVhmQ

[weijian]

I reckon most VBs are probably sanguine about the market. But I thought the below advice is applicable for all markets.

And especially this "Everyone is trying to find their own tribe now" in this social media era where polarization is infectious and prevalent. I thought it is healthier to seek to find out who we are, rather than where we belong.

My Bear Market Survival Guide

I try to be healthy
I turn off my brain for a while
I live my life
I try to avoid taking the market personally
I avoid the dream of perfection

https://awealthofcommonsense.com/2022/05...val-guide/

[CY09]

We are sanguine because top policymakers pretend not to see the elephant in the room and stand there holding up the roof.

Hence we will have elevated valuations on make believe monetary lies

Crypto and elevated property/share prices will prevail