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what is going on traders so i wanted to talk about something michael bury just tweeted today as you know he leaves twitter periodically comes back to tweet something significant but he basically slammed the fed or really projected that the fed would actually stop quantitative tightening by the fall or towards the end of the year due to an effect called a bullwhip effect now he's been rightfully highly critical of the fed before but he's saying that they're actually going to slow down the raising of rates and selling assets off of the balance sheet due to this one effect that will likely take place in the retail sector now this is a very interesting effect i'll describe it in a second but basically there's a story that came out on cnn that was detailing how retailers like walmart and target they are actually thinking about it when customers do a return because they have so much bloat right so much inventory glut what they are thinking of doing is actually telling customers just to keep it because if you've been tracking earnings if you've been tracking retailer earnings lately one of the things that they've been worried about and their guidance is that they've actually now uh have they have an inventory problem so they've overestimated demand due to the demand that was present back when everybody had free money and the whole world was locked down and everyone was buying things like a rabid animal so retail stores actually have overestimated demand and that is leading to a lot of inventory bloat so how does this tie in with what the fed is thinking of doing or what the fed is planning on doing well as you know the fed's number one goal at least the purported goal is to slow down price and stability right but now if we have too much of something and not enough demand and we are seeing demand destruction well the economy is likely going to see a slowdown as we've seen in other sectors in the economy such as housing where housing has become so expensive that now we are finally starting to see a housing slowdown and most economists predict that that is going to be that downward trajectory is going to continue and become even more significant so if there's enough demand destruction where the economy slows down to a halt well then raising rates and tightening in that in that environment could actually bring us not a soft landing but a very hard landing could bring us a very deep recession as opposed to a shallow recession or no recession at all it could also lead to stagflation which some economists think we have now where yes the economy's slowing down but prices are still high anyway not to get too off track here his overall prediction is that the fed will actually likely stop their policies towards the end of the year which would be a huge mistake according to him and i think so as well but what do i know i'm not an economist i just track these things so a bullwhip effect it comes from the the term that you're probably thinking that a bullwhip when you whip it it caught it causes these ripples it's when there's an imbalance between the quantity and the demand and it can it can go it can go in in either direction so like in covid when we saw you know people hoarding toilet paper and paper towels and cleaning products and stuff you had sort of a bullwhip effect where there was too much demand and not enough uh supply in this case we will likely have you know not enough uh not enough demand and too much supply right but the reason that is called a bullwhip effect is because that goes up the supply chain so it's not only the relationship between the retailer and the consumer but it goes up the chain between the retailer and the wholesaler and the wholesaler and the manufacturer and the further you go up the supply chain the greater the impact so concisely what he's saying is that this effect can get so dramatic that the fed will actually not only need to stop policies their current policies of quantitative tightening but now they'll find themselves on the track where they need to increase consumer demand by reversing these policies now this may not be as crazy as you think even though michael bury is known for some pretty outlandish ideas and give him credit some of them did come out to be 100 true and he definitely put his money where his mouth is but this this isn't necessarily something that's out of the realm of possibility i did a video yesterday where i showed you one of the fed presidents already talking about the possibility of a 50 basis point rate hike for july as early as july when you know everyone is pretty much in agreement that a at least a 75 basis point rate hike is necessary but he came out saying that hey if if cpi is actually going down because the cpi numbers will come out before the the next fomc meeting that if cpi shows a significant downtrend then we might actually be softer on policy and recommend a 50 basis point rate hike if we start to see demand soften and we are seeing some signs that demand is starting to soften in certain sectors of the economy and if it's softening quicker than i anticipate then it may be appropriate to go with a 50.
if it's not then it's probably appropriate to go with the 75. so this is not out of the realm of possibility especially for this fed here where they've shown that they're really willing to flip-flop on just the the drop of a hat or the drop of a dime which is the proper term not sure maybe both either way but the fed this fed has been shown that they're willing to flip-flop so not out of the realm of possibility and a very interesting scenario um that could arise from this bullwhip effect anyway sound off in the comment section let me know what you guys think of this i always want to hear from you guys i try to answer every single comment even the funny ones if you got anything out of this hit that thumbs up subscribe to the channel stay safe at that traders peace
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