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michael berry is back again on twitter with some comments on the market finally it's been months since he's commented on the market so it's always good to hear from berry and today we'll look at three of his recent tweets regarding corporate earnings and inflation the cpi and housing numbers and stocks being overvalued so for those who follow bury on twitter knows that he'll disappear for months then go on tweeting sprees and then delete everything so already barry has deleted all of these tweets that we're about to cover and some within just a few hours luckily though we have brewery archive so shadow temporary archive so if you guys want to see all barry's deleted tweets then i'll leave his count below beginning with his most recent tweet from april 13th bury writes watch profit margins fall and then price sales ratios early in an inflation pricing power runs ahead of sticky wages supply contracts inflation laughs last needs not peak but once okay so what does this mean well i will try to make things as simple as possible what he is saying is bearish for stocks and the s p so he's saying price go down he's casting doubt on current evaluations in the s p 500 so stock prices are way up because of inflation but operating expenses haven't been impacted by inflation yet so when inflation hits operating expenses it will cause profit margins to shrink which will tank the price to sales ratio which will create a market crash and another bubble will burst that's sort of the hypothesis here so when burry says inflation laughs last what he is saying is that inflation will ultimately have the last laugh if you're a big corporation in the s p 500 initially inflation seems great asset prices rise earnings and profits go up and operating expenses haven't caught up to the initial burst in profits wages also haven't gone up so again inflation in the beginning is great but what berry is alluding to is that eventually the chickens are going to come home to roost and eventually inflation is going to bring pain to everyone and will have the last laugh it's easy to raise prices in the beginning of an inflationary environment and make sales look strong then however employees demand more money to pay for the increases and employers have to end up paying because of the record profits and they need to keep their employees so in the end wages cost more and her profits so basically burri is saying that those record corporate profits that you've been hearing about which are helping drive up stock prices are about to be constrained causing a second wave of price increases for the consumer so a quick word on these record corporate profits an article from april 13th marketwatch titled corporate profit is at a level well beyond what we have ever seen and it's expected to keep growing the s p 500 profit margin has never before hit 11 but it surpassed 12 in 2021 and is expected to reach 13 in 2022 as inflation hits consumers pocketbooks but isn't showing up on large companies bottom lines yet even as top executives warned about the effects of inflation on their bottom lines profit margins are expected to grow larger still this year and beyond the bureau of economic analysis data shows that there are no historical parallels to that type of profitability from corporations before 1999 either records dating back to the late 1940s showed that after tax corporate profits in relation to gross domestic product are at all-time highs so yeah here's this chart you can see historic profits after tax corporate profits in relation to gdp are at all time highs and this point i think is key here about the ever increasing consolidation we are seeing in a hearing titled corporate profits are soaring as prices rise or corporate greed and profiteering fueling inflation former u.s labor secretary robert reich testified tuesday that one big contributor is a decrease in competition since the 1980s he said two-thirds of all industries have become more concentrated the smaller number of competitors is obvious in a number of industry sectors where profits have grown slowly but steadily through the years big tech for example is a small group of companies that dominate online commerce see article goes on to say we know companies are facing all sorts of costs higher energy costs labor shortages 74 of companies that had conference calls last quarter cited inflation and supply chain so these are big topics some can raise prices some can offset it it will be interesting to watch and see what companies say about their ability to raise prices to offset costs another interesting note i will add they say the most astounding increase may have occurred in the financial sector as the net profit margin increased from 12.97 percent in 2020 to 21.76 percent in 2021 so yeah this right here big banks hit record profit margins a professor over county at columbia business school in new york said that the actions to lower interest rates by the federal reserve since the financial crisis of 2008 have made money so easy in the markets that all financial institutions and wall street investment banks are riding high mostly because of the fed it's probably not surprising the financials have gone up so moving on to the secondary tweet this one from april 11th naihi perched with a multiple problem so in this tweet he shows the same graph from the first tweet i talked about in the s p 500s price to sales ratio insider read an article on this tweet alone with the headline big short investor michael berry warns u.s stocks are heavily overvalued and poised to tumble stating that presumably bury wanted to show the index is trading at nearly twice the revenue of its constituents indicating that the valuation multiples on america's largest public companies have stretched to unsustainable heights so ny means closely and perched is basically on the edge so this tweet can sort of be thought of as we are teetering on the edge here and something's got to give so this sentiment from bury continues to mirror his thoughts from last year where he tweeted similar things such as greatest speculative bubble of all time in all things and that was back in june and in february of 2021 he said that the market was dancing on a knife's edge so getting into his third tweet from april 12th bury writes cpi says housing costs rose 5.0 percent in the last 12 months wrong cpi would be 12 using real world national association of realtors or nar housing data the bls or the bureau of labor statistics which is a government department that's key has smoothed out housing numbers forever because home prices have been a problem forever so next month they will start smoothing out vehicle prices though he also included a screenshot that writes current cpi or the inflation measure is not well suited for the sporadic nature of purchases and depends on fixing weights for an extended period of time rather than leveraging real-time waiting information so essentially what brewery is saying is that the government in their reporting of inflation data is hiding the fact that it is in reality much higher than they say the national median sale price for a single family home jumped 25 from 325 000 in the fourth quarter of 2019 to over 408 000 in the fourth quarter of 2021.
so looking at ranch just to give you another example of what berry is talking about this chart shows zillow's rent index versus the headline cpi rent and you can see that real rent shoots up far faster and higher than what is shown in the actual reported cpi so this article sums it up perfectly i think how the cpi's fuzzy math understates inflation the cpi data category owner's equivalent rent uses data derived from the surveys of homeowners in select markets rather than real world data this technique allows the bls and the federal reserve to understate price inflation so yeah basically i mean this goes without saying right i mean everyone already knows this that inflation is way higher than what you read in the headline cpi's right so i also want to show this chart i thought it was quite interesting you can see here way up at the top soaring above all else is the fed's balance sheet following exactly the housing price index alright so that's gonna be it for all the tweets let me know your thoughts if you interpreted something different from them that i completely missed i would love to hear it and with that thank you guys for watching you
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