Micheal J Burry and the "Bullwhip Effect"

Anybody been reading about this? Very interesting.......
The gist of it seems to be that companies have accumulated huge inventories and, as supply chain issues relax, forward orders keep coming. Warehousing costs become an issue. By Xmas , deep discounts in goods, but fewer buyers, as consumer savings exhausted due to present inflation. So ,de-flation as too many goods chase too few buyers. Fed adopts more dovish tone to interest rates and growth stocks soar. Cassandra BC is Burry's a/c on Twitter ( I'm not on twitter, I read about this in Washington Post). ........worth a read.....as my explanation is surely not accurate enough.

It's certainly an interesting take, especially seeing as it's one of the world's most famous bears striking a bullish tone. This scenario should be good for US growth stocks, as it means a slowdown in interest rate rises.

However I'm not so sure that the bullwhip effect will end inflation and have a material impact to our daily costs, especially in Europe. Much of our inflation is being driven, either directly or indirectly, by energy costs. The warehouses of retail can fill up all they want, it won't slow down the rises in the price of oil and gas.

I haven't heard that about "inventory hoarding" I very much doubt it as China one of the biggest manufacturers has been back in lockdown again and soaring energy prices and labour shortages are hardly the requisites for huge stockpiles of goods. Energy and Food is where the real critical shortages are there is no sign of that changing that will take years to reverse, remember in the 80s we had huge food mountains in Europe but it took decades for that to build up, now there are shortages

As for going into he markets to buy growth stocks remember what happened in the early 2000s after the dot com crash there were many false dawns even the tech behemoths like Amazon and Microsoft took over a decade to return to their 2001 levels. When a big trend changes it takes years for it to wash through, a big trend has changed we are now in the high inflation era and that lasted for a decade from the 70s until 1982

joe sod said:

I haven't heard that about "inventory hoarding" I very much doubt it

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It is true

Just keep your returns: Stores weigh paying you not to bring back unwanted items - CNN

In recent weeks, some of the biggest store chains, including Target (TGT), Walmart, (WMT) Gap (GPS), American Eagle Outfitters (AEO) and others have reported in their latest earnings calls that they have too much inventory of stuff ranging from workout clothes, spring-time jackets and hoodies to garden furniture and bulky kids' toys. It's costing them tons of money to store it.

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"Retailers are stuck with excess inventory of unprecedented levels. They can't afford to take back even more of it."

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joe sod said:

Energy and Food is where the real critical shortages are there is no sign of that changing that will take years to reverse

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This is true and this is why I say above that if this comes to pass it isn't going to fix inflation, but if there is deflationary pressure in some areas it will help to cushion the blow from energy and reduce the headline inflation rate.

Burry's point is not that this will fix inflation, but rather that it could change how the FED and ECB will try to combat it. The current policy of raising interest rates really only helps with reducing consumer demand (ie. it won't fix energy inflation since this has elastic demand and the inflation is supply driven), so if the "bullwhip effect" takes care of this instead then there won't be a need to increase rates further. If the bullwhip effect goes even further, then interest rates may need to be reduced to stimulate demand to help clear out inventories.

joe sod said:

As for going into he markets to buy growth stocks remember what happened in the early 2000s after the dot com crash there were many false dawns even the tech behemoths like Amazon and Microsoft took over a decade to return to their 2001 levels. When a big trend changes it takes years for it to wash through, a big trend has changed we are now in the high inflation era and that lasted for a decade from the 70s until 1982

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I agree that I wouldn't go betting the house on growth stocks right now as there is a lot of uncertainty around, however I do think that the FED interest rate rises is the primary reason for the historically poor performance of stocks this year. The market has priced in significant rises over the rest of the year and if that turns out to not be required then there may be a significant rally.

I actually did read that about Wallmart and other stores having stocks of inventory now because they over ordered due to the supply bottle necks resulting from Covid lockdowns.
Basically when they finally got the products in the demand suddenly dropped due to the fact that the bars restaurants and Holidays were opened up again and people switched their demand from products back to "going out" and experiences.

However the inflation has simply switched back to the hospitality sector as they are supply constrained due to labour shortages. Anyone booking a hotel or trying to get through dublin Airport can attest to thar. Look at the cost of flights , hotels and hospitality this Summer.

Folks

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We don't discuss individual shares. While it's ok to give an occasional reference to a company to illustrate some overall development, this should not be used as a free for all.

Brendan