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July
03
2023

'Big Short' investor Michael Burry predicts a consumer recession — and warns companies face more earnings pain
Theron Mohamed

• Michael Burry predicted a consumer recession and more pressure on company profits.
  
  
• People are saving less, borrowing more, and have spent what they saved during the pandemic, he said.
  
  
• "The Big Short" investor expects those trends to weigh on consumer spending and corporate results.

Americans are saving less, borrowing more, and have spent the extra money they stashed away during the pandemic. Those trends could herald a sustained decline in consumer spending, and erode corporate earnings, Michael Burry warned on Friday.

"US Personal Savings fell to 2013 levels, the savings rate to 2008 levels — while revolving credit card debt grew at a record-setting pace back to the pre-COVID peak despite all those $trillions of cash dropped in their laps," he tweeted. "Looming: a consumer recession and more earnings trouble."

In other words, if people are becoming more indebted and their rainy-day funds are dwindling, they're likely to slash their spending, sapping economic growth and hurting companies' bottom lines.

The soaring costs of food, gas, and housing are undoubtedly a factor; inflation is squeezing consumers and leaving them with less disposable income.

Burry is best known for his billion-dollar bet against the mid-2000s housing bubble, which was immortalized in the book and film "The Big Short."

He also helped pave the way for GameStop shares to skyrocket in January 2021 by investing in the video-game retailer, and made high-profile bets against Elon Musk's Tesla and Cathie Wood's flagship Ark Innovation fund last year.

The Scion Asset Management boss has previously raised concerns about American consumers. He tweeted in Aprilthat US households increased their wealth during the pandemic thanks to stimulus checks, forgivable loans, cash-out refinancing offers, and indirect economic aid.

That might sound positive, but Burry questioned how people could ever rebuild that wealth. He was probably referring to inflation fears preventing further stimulus, and higher prices, rising interest rates, asset-price declines, and limited wage gains weighing on people's finances.

Burry is infamous for his dire predictions. He diagnosed the "greatest speculative bubble of all time in all things" last summer, and warned buyers of meme stocks and cryptocurrencies that they were barreling towards the "mother of all crashes."

 

Theron Mohamed is a correspondent who writes a mix of free and paywalled stories for Markets Insider and Business Insider. He covers Warren Buffett, Michael Burry and other leading investors, as well as financial markets more broadly.

Theron previously covered tech, media, and telecom stocks for Investors Chronicle magazine. He's written for the Financial Times, Wall Street Journal, The Independent, The Telegraph and WIRED. He has an undergraduate degree in geography from the London School of Economics, and a master's degree in journalism from Columbia University.

 

 

 

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