- Michael Burry says ballooning retail inventories usually reflect inflation and overstocking.
- "The Big Short" investor expects consumer demand to wane as higher prices erode savings.
- Burry predicts slower inflation will spur the Federal Reserve to begin cutting interest rates again.
Walmart, Target, and other leading US retailers are drowning in inventory, and preparing to slash prices to get rid of their mountains of unsold goods. Soaring living costs and overstocking are likely responsible for the bloat, Michael Burry asserted in a now-deleted tweet on Monday.
"When you see inventory builds, think two things," Burry tweeted. "'Just in Case' supply chain management, and inflation."
The investor of "The Big Short" fame added that there's "nuance in everything," and urged his followers not to oversimplify his comments, or assume that stories about his often short and cryptic tweets have fully captured his views on a subject.
Burry has previously attributed ballooning inventories to the "Bullwhip Effect," when retailers, manufacturers, and suppliers overreact to a slight increase in consumer demand. They anticipate even more demand that doesn't materialize, resulting in excess supply.
Similarly, "Just in Case" supply chain management refers to companies producing and stocking more goods just in case more orders come in. It's a play on the "Just in Time" approach, when businesses set up supply chains so that products are only manufactured and shipped to retailers just before they're sold, minimizing inventories and related costs.
Meanwhile, inflation has surged to a 40-year high in recent months, reflecting painful increases in food, fuel, and housing costs. Burry has warned that US consumers are saving less, racking up debt, and on track to virtually exhaust their savings by Christmas.
The Scion Asset Management chief expects that trend to weaken consumer demand, and sees retailers cutting prices to reduce their inventories, resulting in slower inflation by the end of this year. That will pave the way for the Federal Reserve to reverse course and begin stimulating the economy again, he said.
On the other hand, Burry suggested that a chronic shortage of blue-collar workers, a shift towards onshoring production, and a wider revamp of global supply chains following the pandemic would underpin higher inflation in the long run.
Burry shot to fame after his billion-dollar bet against the mid-2000s housing bubble was chronicled in the book and the movie "The Big Short."
He's also known for inadvertently sparking the meme-stock boom by investing in GameStop, placing high-profile wagers against Elon Musk's Tesla and Cathie Wood's flagship Ark fund last year, and tweeting dire warnings about dangerous asset bubbles and devastating market crashes.