Michael Burry: EVERYONE Will Be Terrified Soon - YouTube

Michael Burry just dropped a bombshell on  one of the most shocking crises of all time.  

Just like 1999 and 2008, nobody knows what Burry  sees, but the world is about to wake up soon. In  

Burry's own words, "The theater took more than  a decade to overstuff. "Not likely everyone gets  

out in less than a year." While it took ages for  the theater to be stuffed with millions of people,  

the collapse will be quick and painful. Some  people are inevitably going to be left behind  

and it's going to be their fault for not  catching on. Even though the signs have  

been there for years, investors worldwide  will still be in for a rude awakening.  

Everyone knows that the government messed up,  but that's not what I'm about to tell you.  

The Federal Reserve printed $5 trillion  and this unsurprisingly led prices to rise.  

The inflation rate is currently at 8.6% as a  result of this. Contrary to the mainstream media,  

Burry doesn't think that inflation is  going to remain elevated in the short-term.  

It's true that the fed printed at an annual  rate of $1.5 trillion during the pandemic,  

but the opposite is now playing out. The Fed  is planning to cut the money supply at an  

annual rate of $1.1 trillion. If prices rose  after the Fed printed trillions of dollars,  

it's logical to assume that prices will  drop after the Fed pulls back trillions.  

This is happening at the same time that supply  chains are catching up to demand. Supply chains  

have been under pressure over the past couple of  years, but this is starting to change. The world  

hasn't been sitting back and letting the pandemic  gloom over. It's in our nature to adapt to the  

changing environment. New supply chains have  been set up. Businesses have been becoming more  

efficient. More container ships are being built.  The supply panic is on full speed by all means.  

One shipping analyst said that last week, 13 more  container ships were ordered, bringing the total  

for the year to 239. This is already the fifth  largest year on record for container ship orders  

and we are only halfway through the year. Such  a large increase is obviously not sustainable.  

Another analyst explained how the size of the  outlook is obviously a reason for concern.  

We're starting to see the scramble to produce  supply in the growth of inventories. Wholesale  

inventories are up 24% year-over-year. The problem  with this newfound supply is that consumers are  

not spending as much. Consumer sentiment is at  a one and a half decade low according to the  

UMichigan Consumer Sentiment Index. When you have  an oversupply of goods and low consumer demand,  

prices are bound to drop at a rapid pace. Burry  tweeted, "Question: in 2022, "what brings a  

Christmas in July? "Answer: a disinflationary  overstocked consumer recession "at Christmas."  

Burry is hinting at an upcoming supply  glut. A supply glut is when retail stores,  

suddenly have far too much supply and not  enough demand. As a result of a supply glut,  

retail stores will have to start dropping  prices by introducing mass sales.  

That's what Burry means when he says  that Christmas will come early in July.  

Christmas sales always happen because businesses  produce too many goods that need to be sold.  

The only way to sell those goods is by dropping  the price. July 2022 will be an early Christmas  

and not for a good reason. When there are too  many goods on the shelves, corporate profits  

will drop immensely, which will eventually cause  people to be laid off or see their salaries cut.  

Burry expanded on this concept by saying, "This  supply glut at retail is the Bullwhip Effect.  

"Google it. "Worth understanding for your  investing endeavors. "Deflationary pulses  

from this leads to disinflation "and CPI later  this year, "which then leads to the Fed reversing  

itself on rates "and quantitative tightening "And  this leads to cycles of that occurring again.  

The Bullwhip Effect is when a spike in demand  causes the suppliers to order too much supply.  

This is because businesses tend to order a  little more supply than needed as a safety net.  

The problem with this is that when there's a  chain of businesses all ordering extra orders,  

the supply can be magnified to unhealthy levels.  The supply chain typically includes retailers,  

wholesalers and manufacturers. As you can see in  this demonstration, each step of the supply chain  

over ordering ultimately leads to excess orders.  This is similar to a bullwhip, hence the name  

the Bullwhip Effect. Let's say a Walmart store  typically sells around 30 boxes of cereal per day.  

Because of a new social media trend, cereal sales  have increased drastically in the short-term.  

Instead of selling the typical 30 boxes of  cereal, let's say the Walmart store is now selling  

90 boxes of cereal per day. As a result of this  increase in demand, Walmart will now order cereal  

at a rate of 150 boxes of cereal per day. This  gives Walmart 60 extra boxes per day, just in case  

the demand increases at any point in time. General  Mills now receives Walmart's order of 150 cereal  

boxes per day. This spike in demand will now be  General Mills to order 250 cereal boxes per day.  

The cereal manufacturer will now see 250  orders and increased production to 350 cereal  

boxes per day. Throughout this process,  we went from 90 boxes of cereal to 350.  

Not only do we have 260 extra boxes of cereal per  day, but the short term spike in demand could also  

dissipate at any point in time. Because there  was a sudden increase in the supply of cereal,  

businesses across the supply chain will have to  cut prices. This causes the opposite of a supply  

glut. Retailers will now order less supply.  Once the cereal supply inevitably runs out,  

businesses will once again be left  scrambling to get their hands on cereal.  

Cereal prices will skyrocket once again, causing  retailers like Walmart to order more cereal. This  

brings us back to square one. We are currently  experiencing the Bullwhip Effect on steroids.  

Retailers have ordered boatloads full of supply  as a result of the unprecedented supply shortage.  

This has led to one of the biggest bullwhips in  history. And when there's a bullwhip, a supply  

glut is inevitable. Burry knows our incoming  supply glut will cause deflationary forces that  

lead to disinflation. Disinflation is when the  inflation rate slows down dramatically. So instead  

of inflation continuing to accelerate like many  think, inflation will actually decelerate soon.  

Because of incoming disinflation from the Bullwhip  Effect, the Fed may start printing money again,  

which is better known as quantitative easing.  Quantitative easing will then boost consumer  

demand and cause another supply shortage. Because  of the supply shortage, the Fed will then pull  

money out of the system to stop inflation - also  known as quantitative tightening. The only problem  

is that retailers will once again order extra  supply and cause the Bullwhip Effect again.  

When there's too much supply, prices will drop and  cause the Fed to start quantitative easing again.  

This would artificially increase consumer  demand and lead to a supply shortage,  

which only sets the stage for another bullwhip.  Such a cycle is frightening because it causes the  

economy to be stuck in recurring bullwhips. We are  currently in the bullwhip portion of this cycle,  

and as a result, will experience one of the  worst crashes in history. The Bullwhip Effect  

is simply caused by human nature and cannot  be stopped regardless of how well known it is.  

Burry elaborated on the Bullwhip Effect by  saying, "Across the economy, "different verticals  

are in different phases "at the same time. "But  fundamental equity investors "are rarely looking  

at more than one vertical at a time." Burry  is essentially calling for a massive bullwhip  

across the entire economy. This means that the  bullwhip doesn't just include retail stores  

like Walmart and Target. It could also include  other industries ranging all the way from plane  

manufacturing to cell phones. Attached to Burry's  tweet was a website describing the Beer Game.  

Contrary to what you might be thinking, the Beer  Game has nothing to do with drinking beer. The  

goal of the Beer Game is to simulate the supply  chain of beer. There are four units in the game.  

The retailer, wholesaler, distributor and brewer.  Students in the game are split up into four groups  

with each group being a unit. The goal of each  unit is to obtain the highest profit possible.  

At the end of the game, it is almost always the  case that inventories end up being too high.  

This is because each of the four units  always order extra beers, which magnifies  

the end results. The Beer Game proves that  the Bullwhip Effect is simply human nature.  

Retailers are already seeing the Bullwhip Effect  at play right now. Walmart's inventories in the  

first quarter of 2022 were up 33% year-over-year.  Home Depot's inventories were up 32%.  

This happened while Walmart, Home Depot and Target  all saw their sales increase by only two to four  

percent year-over-year. The retailers' inventories  are increasing 10 times faster than sales,  

which is an obvious sign of the Bullwhip Effect.  As mentioned before, the Bullwhip Effect doesn't  

just happen once every decade. It's a recurring  cycle that only worsens over time, with prices  

mainly going upwards over the long-term. Burry  tweeted, "January, 1973. "President Johnson died,  

Foreman beat Frazier, "and Roe v. Wade. "The Dow  Jones hit its highs for the 1966 to 1982 period,  

"as cyclical inflation reduced the spending of  the dollar "to just 35 cents." "There was never  

a deflation to reverse that. "Now 10 cents." The  cycle of bullwhips caused prices to go up and down  

periodically. But at the end of the cycle, there  was one last price surge that never saw its 

downward counterpart. So while prices oscillated,  they ended up being elevated in the long-term.  

Attached to Burry's tweet was a graph  showing the inflation rate in the 1970s.  

You can clearly see how the inflation rate  was moving up and down in a cyclical fashion,  

which perfectly demonstrates the Bullwhip Effect  at play. Over time the Bullwhip Effect got bigger  

and bigger with the inflation rate always  being positive. Prices throughout the 1970s  

rose dramatically. And they never went back down  because inflation remained significantly positive.  

The last surge in the inflation rate never  went back down to the 2% rate that happened  

in the first bullwhip. Burry explained further by  saying, "Transitory, no. "Peak, no. "To the moon?  

"If you mean a cold dark place." At the bottom  of his tweet was an article describing how prices  

went up so much that nobody wanted to purchase  bonds anymore. "The CPI news this morning was  

so awful "that it changed the bond market's view  of Fed trajectory "and the weakest sector broke.  

"In bond jargon, "mortgage-backed securities  went no-bid. "No buyers for mortgage-backed  

securities." The financial markets typically  work with bids and asks. The bid is the price  

that buyers are willing to pay and the ask is  the price that sellers are willing to sell. This  

creates a spread between the two prices. A market  maker like Citadel will then purchase the asset  

at the bidding price and sell it at the asking  price, essentially making money from the spread.  

Inflation was so high in June that there were no  bids for mortgage-backed securities. This means  

that there was literally no price that buyers were  willing to pay for on mortgage-backed securities,  

which are bonds that are secured by home loans.  This is a terrifying signal showing that inflation  

is likely here to stay. This is because even  though the Fed is trying to stop inflation,  

not everyone is on the same page. Burry tweeted  an article announcing the inflation relief  

payments that Californians will receive. This is  ridiculous because giving free money is only going  

to make inflation worse. He ridiculed California's  behavior by saying, "That is not how this works.  

"That is not how any of this works." We're  clearly in a frightening economic environment,  

but there must be light at the end of the tunnel.  Burry doesn't see this light coming anytime soon.  

He tweeted a quote by billionaire businessman Tom  Siebel: "I don't think this is going to be over  

"until everybody swears they will never own crypto  "and they will never own a technology stock."  

Burry added his own comment by saying, "Such was  a sign in 2002, 1932, and '74. "09 was a panic  

bottom, "but 07 not a speculative peak in stocks."  We experienced a speculative peak in 2021. And  

speculation typically ends with everyone scared  of speculative assets. We're currently not there  

yet at the moment. Bitcoin, an asset that Burry  despises, is still relatively popular right now.  

Burry tweeted a graph showing the correlation  between NASDAQ and Bitcoin and questioned,  

"Are we sure Bitcoin is not just another risk  asset "in the NASDAQ 100?" The strong correlation  

between Bitcoin and the NASDAQ shows that Bitcoin  isn't an uncorrelated asset. The facts that  

Bitcoin's price fluctuates in a similar fashion  to the NASDAQ shows that it is simply just another  

tech stock with a new name. Some people like Jim  Cramer might point toward a short-term rally as a  

sign of recovery. But Burry knows that short-term  rallies happen the most during market crashes.  

It might sound contradicting to have the  biggest rallies during market crashes,  

but history has shown that to be the case. Burry  tweeted, "Who knew this year was so much fun,  

"because of all the doomed rallies?  "Recall, 1929 to 1932 top to bottom,  

"10 rallies above 10%, averaging 23%. "2000 to  2002, 16 rallies above 10%, averaging 23%." So  

every year we have a massive multi-year crash,  there are plenty 10 to 25% rallies. However,  

you shouldn't mistake those rallies as a sign of  long-term market recovery. Short-term rallies mean  

nothing during a bear market. So with that being  said, how is Burry preparing for the incoming  

crisis? People can say whatever they want, but if  their money isn't where the mouth is, then they're  

simply bluffing for attention. Unlike other market  crash predictors, Burry's money is certainly where  

his mouth is. That being said, his positions  are more complicated than you might think.  

That's why I'm going to release another video  analyzing how he's about to make hundreds of  

millions of dollars in the coming crash. You're  going to be surprised at what I have uncovered in  

Burry's unique and convoluted strategy. Make  sure to hit that subscribe button, so that  

you don't miss out on my next video analyzing  Burry's portfolio. If you enjoyed this video,  

please hit the Like button as well. Thank you for  all your support and I'll see you in the next one.