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Michael Burry’s Forecast on Inflation Hits the Mark, But ‘Mother of All Crashes’ Yet to Arrive

Renowned investor and “The Big Short” star, Michael Burry, seems to have once again hit the bull’s eye with his prediction that inflation rates would drop within a few months when they reached a peak last year. However, some of his other forecasts, notably concerning a colossal stock market crash and a potential recession, haven’t materialized just yet.

Last June, the Consumer Price Index (CPI) climbed to an eye-watering 40-year high of 9.1%. Just a couple of weeks before this data was released, Burry took to Twitter – in a post that has since been removed – to predict a “disinflation in CPI” by year’s end.

His prescient forecast came true when annualized price growth decelerated to 6.5% by December. At the start of the new year, Burry made another bet on Twitter that inflation would continue to fall. So far, his prophecy is on track, as inflation slowed further to 4% by May.

Burry, who heads Scion Asset Management, has made a name for himself with his eerily accurate and often gloomy predictions. He foretold the mid-2000s housing bubble collapse, famously depicted in the book and movie “The Big Short.” He also raised the alarm over the risk of post-pandemic inflation in April 2020 when the CPI was below the Federal Reserve’s target rate of 2%.

However, not all his forecasts have come to pass. After predicting a monumental market bubble, warning it would conclude with the “mother of all crashes,” he suggested in a tweet last May that the S&P 500 could tumble below 1,900 points, based on the index’s performance in past crashes. While the S&P 500 did indeed dip nearly 20% in 2022, it has rebounded 16% this year, settling around the 4,400 mark.

Moreover, Burry had anticipated that rising costs and heightened borrowing expenses would deplete the savings of American households by the end of last year, leading to a decrease in consumer spending and a subsequent reduction in corporate profits. Additionally, he predicted a likely US recession this January, causing the Fed to reduce interest rates and the government to stimulate the economy, resulting in a renewed inflation surge.

As of now, the resilience of consumer spending and employment has kept hopes alive for sustained US economic growth, potentially staving off a downturn. The Fed, having already raised rates from close to zero to over 5% since last spring, has hinted at further hikes in the future.

Nonetheless, given his impressive track record of predicting market events, Burry remains a figure worth paying attention to. Last summer, in another deleted tweet, he outlined some of his biggest successful forecasts:

“Just getting one thing right is hard. 1999 tech bubble, 01-05 value revival, 2005 housing bubble, 2009 almond farms, 2020 COVID bottom, 2020 lockdown horrors, 2021 meme stocks, 2021 crypto leverage, 2021 inflation, 2022 not done yet, late 2022 ????”

Given these bold predictions and Burry’s proven knack for forecasting, entrepreneurs and investors should consider his views as one of many factors when shaping their strategies and decision-making processes.