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Michael burry has consistently profited enormously from significant Market crashes the market has already fallen significantly but according to bury this is just the beginning of a much bigger fall he predicts that the market will drop more than 50 percent from current levels today we'll discuss what Barry thinks of the market and how you should manage your risks according to bury although nearly a year has passed since buri's first prediction in 2021 things have happened exactly as he predicted bury foresaw accelerated inflation the demise of growth stocks a General market correction and falling bond prices human Nature's predictability is one of the reasons bury was able to foresee Market catastrophes history demonstrates that human behavior has not changed regardless of technological advancement Michael Murray's observation of some unsettling fundamentals supports his prognosis the Dismal macroeconomic scenario is well known some economists will predict that the situation in Ukraine and Russia is about to collapse While others will assert that China's economy is fragile or that interest rates in the U.S are still Rising despite the possibility that each of those scenarios is real there is only one element that can lead to the collapse of the economy the customer a consumer's weakness at some time will cause the entire economy to collapse because the consumer drives the economy almost entirely 7.1 percent of the U.S GDP comes from personal consumption expenditures alone the economy will crash if we all stop consuming and start conserving bury added this is the issue over the previous 18 months less 800 billion in direct stimulus checks 400 billion in refinancing over 1 trillion in forgiven debts 250 to 500 billion of which were fraudulent another 4 trillion in indirect payments Etc currently what recapitalizes the consumer pay raises won't accomplish that consumers feel that their money is worth much less as a result of the economy's rapid price increases and there is plenty of Statistics to support this claim the consumers are weaker than ever the consumer expectations index from the University of Michigan is the most well-known indicator of consumer Behavior the fact that consumer expectations are at an all-time low and that Amazon's revenue growth is slowing down are both indicators of weaker consumer demand Amazon's first quarter results were dismal with Revenue increasing by only seven percent year over year and the majority of the revenue virtually absent in the tech era Amazon has taken over as the primary marketplace where most people buy their goods consumers are in an exceedingly precarious situation as seen by Amazon's dismal quarterly Financial results consequently how did bury amass millions and how many investors replicated success URI predicts that firms will struggle to retain double the rate of return as the first economic impact of weaker consumers bury anticipates employing Bond shorts to make millions if not billions of dollars in the upcoming year he stated among other things that he was selling 30-year treasury Bonds in late 2021 for what it's worth I've never shorted any coin this is my third bubble and the biggest I've learned a thing or two from 30-year treasuries he posted on Twitter on the other hand it is quite clear why bury is shorting bonds Bond investors were sure to lose 5 annually when inflation surged to around seven percent while the return on 30-year bonds was still just about 2 percent Bond rates and bond prices have a short-term inverse relationship which causes bond prices to decline as yields rise TBT is a fund that invests in Ultra short 20-year treasury Securities and it's one of the funds that bury purchased TBT offers a variety of bonds bond yields have increased dramatically during the previous few months as a result of rising interest rates inflation and the current situation in Ukraine this has caused bonds to decline and TBT to rise the TBT fund has increased by more than 43 percent since it initially opened a short position which is a sizable gain but Bari anticipates future gains to be substantially greater Rory most recently tweeted 1977 says hello along with a picture of himself from that year it made reference to the state of the economy in the 1970s the 1970s are referred to as the great inflation era because of the high amounts of inflation at the time inflation peaked in 1980 at almost 14 percent up from a rate of 6.5 percent in 1977.
this is fairly comparable to how things are now Ori predicts that inflation which is currently at eight percent might eventually rise to 10 percent or even 15 percent in fact it's possible that inflation has already risen above 10 percent the Consumer Price Index which is used to calculate inflation is disputed by bori he clarifies here the CPI reports that housing costs increased five percent in the previous year using actual Nar housing data the incorrect CPI is 12.
since home prices have been an issue for so long BLS has always smoothed out housing data therefore they'll begin adjusting vehicle rates next month thus solving the issue URI is basically claiming that the data used to calculate the CPI is far behind the CPI number suggests that housing prices increased by only five percent last year which is undoubtedly false if you use real data to compute the cost of housing CPI inflation would be at 12 percent which means that the present inflation rate of 8 percent is four percentage points higher than the true rate this error in judgment along with other macroeconomic variables would result in a market collapse of around 55 percent of present price levels Laurie clarified the speculative Peaks and Paradigm shifts the S P 500 bottomed at 13 lower than it did in 2002 2009 saw 17 decreases from the ltcm crisis low in 2002 and 10 decreases from the bottom of the 1970s and 1975.
SPX 1862 is 15 lower than the current low according to historical data the nominal price earnings ratio is nine and the Schiller p e ratio is around 16. if we assume that the pattern of Market crashes identified by Michael Murray persist the s p will tumble to a level that is only marginally lower than the collapse connected to covid Murray uses 15 as an example here to see if it would theoretically make sense if the s p collapsed to 15 below this previous low during covet at that point the index would be at about 1800 points which is about 55 below current levels and would return it to historical price levels the Schiller p e ratio through time is depicted in one of the figures that bury added to his tweet the Schiller ratio is a cyclically adjusted price to earnings ratio which means that it takes inflation into account when adjusting the price to earnings ratio Schiller's ratio is currently 36.55 a decrease would bring it to roughly 16 which is in line with the historical Norm IE also included a graph showing the nominal p e Ratio or price to earnings ratio over the previous 12 months the current p e ratio is 21 and a 55 collapse would roughly translate to a value of 9.
a PE of 9 would be somewhat below average which makes sense in Murray's opinion all of this supports his assertion that the discomfort has not yet diminished some of you believe that short-term crashes don't matter if you own stocks over the long term if you can handle the emotional pain of seeing a sizable decline in your portfolio this is unquestionably true great businesses consistently face short-term setbacks and generate long-term profitability Amazon during the.com bubble is one illustration URI inquired how long can a good expanding Company's stock go one destined to rank among the top businesses in the world do you recall when Amazon plummeted by 95 but the fed the FED did not then have to worry about inflation to this extent perhaps the stock market isn't for you if you can't maintain confidence in a stock that is down more than 95 percent all investors experience emotional reactions to short-term volatility and managing those reactions can be quite challenging speaking of volatility trading volume is another indicator of further collapse during Market crashes trading volume increases as buyers increase their buying and selling activity there has never been a trading volume of outstanding stocks this low bury has provided a thorough explanation of every step of what takes place by 2002 Microsoft traded 5.2 times its outstanding shares by 2009 3.3 times and thus far 0.5 times by 2002 Amazon had traded 5.7 Times by 2009 6.6 times and thus far 0.9 times by 2002 JP Morgan had traded three times 5.9 Times by 2009 around 0.7 times thus far Etc the trade volume still has to expand 5 to 10 times from current levels which takes time this is because the market tends to have more trading volume when prices are lower thus the trading volume still needs to rise dramatically in order for the market to resemble prior crashes that concludes today's video which we hope you enjoyed comment on Michael Murray's predictions and your own preparations for a potential stock market crash let us know what you think thanks for viewing and we'll see you soon
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