Michael Burry Warns Of “Permanent Decline” In A Dire Warning

The global economy is reeling from the impact of inflation. However, according to the expert investor and founder of Scion Capital, Michael Burry, the macroeconomic situation will worsen. Burry became famous due to his prediction and shorting of the subprime mortgage crisis.

Burry draws attention to the worsening white-collar employment. According to him, the white-collar employment bubble is bursting and there is a threat of a permanent decline in employment. Moreover, Burry believes that working from home will be seen as the culprit for the worsening employment in the long run.

The US Department of Labor will release the US initial jobless claims on Thursday.

Why Michael Burry’s Warning Matters

The US economy is mired with soaring inflation. The Federal Reserve is taking an aggressive stance to curb the inflation levels in the economy. The Fed is increasing interest rates to stabilize the price. It is also engaging in quantitative tightening by offloading its balance sheet which ballooned during the pandemic. After the consumer price data of August showed worse-than-expected inflation, the Fed increased the interest rates with another 75 bps hike.

Experts believe that a 100 bps mega hike is also likely before the end of 2022. The Fed considers employment to be an important facet of the economy. A strong labor market may bolster the Fed’s hawkish stance.

The unemployment claims have another significance in the current economic environment. Due to aggressive monetary policies, the global economy is facing the threat of a recession. FedEx has claimed that the demand slowdown will lead to a recession.

The Fed had pointed to the strength of the labor market to dispel recession fears. However, a decline in white-collar employment can signify the start of a recession.

Michael Burry also recently promised a 2008-level economic crash.

Fed’s Stance On Recession

The Federal Reserve is continuing its hawkish stance and has underestimated the recession. However, there is a distinct shift in its tone. The market will pay attention to the several upcoming speeches of key Fed officials.