(Kitco News) As the Federal Reserve once again downplays inflation concerns, some major market players, including “Big Short” investor Michael Burry, are signaling just the opposite.
Powell
During his two-day testimony before Congress, Powell reiterated that central banks have learned how to keep inflation under control and that high inflation is “not a problem for this time.”
Powell pointed out that even though inflation may be volatile over the next few months, the effects won’t be “large or persistent.”
He added that inflation has been low for the last 25 years, and that it was not about to change. “We don’t see how a burst of fiscal support changes those inflation dynamics,” Powell said.
Powell even said that central banks have to unlearn the relationship with the money supply, noting that the growth of M2 doesn’t have a relationship with economic growth anymore.
When asked to elaborate on some leading inflation indicators, Powell noted that inflation dynamics evolve over time and don’t change overnight.
“Inflation is something I remember well. We’ve been in a low inflationary mode. And we have guidance telling markets when tapering will begin or when we will start raising rates,” he said.
Powell added that supply chain issues matter for inflation only when they are permanently challenged. “If there is a shortage of cars, prices will go up, but that doesn’t cause inflation. Inflation is something that happens year on year,” Powell said on Wednesday.
‘Big Short’ investor Michael Burry
These comments are in contrast to the alarm being sounded on Wall Street. The latest heavyweight to join the conversation was Michael Burry — the investor who was profiled in Michael Lewis’ “The Big Short” book about the mortgage crisis and who now runs Scion Asset Management.
Burry sent out a warning into the Twitterverse, warning investors to brace for inflation, as he pointed to a boom in demand due to the fiscal stimulus being injected into the economy.
“The U.S. government is inviting inflation with its MMT-tinged policies. Brisk Debt/GDP, M2 increases while retail sales, PMI stage V recovery. Trillions more stimulus & re-opening to boost demand as employee and supply chain costs skyrocket,” Burry tweeted on Saturday.
Burry is known for spotting the mortgage crisis ahead of time and making a fortune against the U.S. housing bubble. He became famous after his portrayal in the book and movie “The Big Short.” In 2019, Burry has invested in GameStop, well before the retail frenzy took over the stock, making millions.
The Scion Asset Management chief also quoted the book by Jens O. Parsson titled “Dying of Money: Lessons of the Great German and American Inflations.”
“Germany [the US] started by not paying adequately for its war [on COVID and the GFC fallout] out of the sacrifices of its people – taxes – but covered its deficits with war loans [Treasuries] and issues of new paper Reichsmarks [dollars]. ‘#doomedtorepeat,” Burry tweeted.
“#History is not useless,” said another tweet. “This text explores the 1970s American #inflation, which is more relevant today than one might think.”
Burry went on to say that in an inflationary crisis, the government would try to crush assets like gold and bitcoin.
“Prepare for inflation. Re-opening & stimulus are on the way. Pre-Covid it took $3 debt to create $1 GDP, and it is worse now. In an inflationary crisis, governments will move to squash competitors in the currency arena. BTC. Gold.”
Burry is short bitcoin at the moment, tweeting that the “long-term future is tenuous for decentralized crypto in a world of legally violent, heartless centralized governments with lifeblood interests in monopolies on currencies.”
Since then, Burry, under the hashtag @michaeljburry, has deleted all of his tweets, emptying his account completely.
Before 2021 even started, many analysts were worried about the threat of inflation. Here’s what some major players have said recently.
JPMorgan
Signs of inflation are already here, JPMorgan said in a note last week, adding that higher prices will trigger a new commodity supercycle.
“The tide on yields and inflation is turning,” JPMorgan said. “We believe that the new commodity upswing, and in particular oil up cycle, has started.”
Goldman Sachs
Goldman Sachs noted that inflation fears are driving some parts of the market but warned that the likely inflationary surge this year will be due to the base effects when weaker inflationary months are phased out from annual measures.
“Many investors believe the spending boost will lead to higher inflation and interest rates, which would reduce the value of equity duration and increase the importance of near-term growth,” said Goldman Sachs strategists. “Historically, inflation has boosted nominal S&P 500 revenues, but weighed on profit margins as companies struggled to lift prices at the same pace as rising input costs.”
Citigroup
As the economy improves, inflation fears are growing, according to Citigroup.
“Lead indicators suggest that an inflation scare may be in the making,” Citigroup Inc.’s chief U.S. equity strategist Tobias Levkovich. “Companies with price flexibility should come out as winners.”
Blackstone
Inflation means that we don’t “have the wind at our back anymore.”
“We’ve had a long 35 to 40 years of rate decline that has been a big support behind fixed-income investing, a big support behind equity multiples expanding, and so for those of us that live and breathe investing, it’s been a wind at our back for a long time,” said Blackstoneglobal head of credit Dwight Scott. “I don’t think we have the wind at our back anymore, but we don’t have the wind in our face yet. This is what the conversation on inflation is really about.”
Vanguard
Inflation is a big risk to the markets, according to Vanguard.
“The big risk in the market really is inflation, whether it is transitory or whether it is something more deep rooted,” said Vanguard head of investment-grade credit Arvind Narayanan. “There’s just a tremendous amount of stimulus in the marketplace, both monetary and fiscal, that favor economic growth.”
TORONTO – Cineplex Inc. reported a loss in its latest quarter compared with a profit a year ago as it was hit by a fine for deceptive marketing practices imposed by the Competition Tribunal.
The movie theatre company says it lost $24.7 million or 39 cents per diluted share for the quarter ended Sept. 30 compared with a profit of $29.7 million or 40 cents per diluted share a year earlier.
The results in the most recent quarter included a $39.2-million provision related to the Competition Tribunal decision, which Cineplex is appealing.
The Competition Bureau accused the company of misleading theatregoers by not immediately presenting them with the full price of a movie ticket when they purchased seats online, a view the company has rejected.
Revenue for the quarter totalled $395.6 million, down from $414.5 million in the same quarter last year, while theatre attendance totalled 13.3 million for the quarter compared with nearly 15.7 million a year earlier.
Box office revenue per patron in the quarter climbed to $13.19 compared with $12 in the same quarter last year, while concession revenue per patron amounted to $9.85, up from $8.44 a year ago.
This report by The Canadian Press was first published Nov. 6, 2024.
TORONTO – Restaurant Brands International Inc. reported net income of US$357 million for its third quarter, down from US$364 million in the same quarter last year.
The company, which keeps its books in U.S. dollars, says its profit amounted to 79 cents US per diluted share for the quarter ended Sept. 30 compared with 79 cents US per diluted share a year earlier.
Revenue for the parent company of Tim Hortons, Burger King, Popeyes and Firehouse Subs, totalled US$2.29 billion, up from US$1.84 billion in the same quarter last year.
Consolidated comparable sales were up 0.3 per cent.
On an adjusted basis, Restaurant Brands says it earned 93 cents US per diluted share in its latest quarter, up from an adjusted profit of 90 cents US per diluted share a year earlier.
The average analyst estimate had been for a profit of 95 cents US per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 5, 2024.
ST. JOHN’S, N.L. – Fortis Inc. reported a third-quarter profit of $420 million, up from $394 million in the same quarter last year.
The electric and gas utility says the profit amounted to 85 cents per share for the quarter ended Sept. 30, up from 81 cents per share a year earlier.
Fortis says the increase was driven by rate base growth across its utilities, and strong earnings in Arizona largely reflecting new customer rates at Tucson Electric Power.
Revenue in the quarter totalled $2.77 billion, up from $2.72 billion in the same quarter last year.
On an adjusted basis, Fortis says it earned 85 cents per share in its latest quarter, up from an adjusted profit of 84 cents per share in the third quarter of 2023.
The average analyst estimate had been for a profit of 82 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 5, 2024.
