Why Michael Burry Sees Long-Term Inflation, Bigger Market Crash Ahead

Zinger Key Points
  • China sees Taiwan as a breakaway province, while Taiwan sees itself as an independent country.
  • Michael Burry refers to a supply chain phenomenon called a "bullwhip."

Scion Asset Management CEO Michael Burry took to Twitter Inc TWTR on Tuesday to warn his 915,000 followers of long-term inflation and owes it to four critical factors.

What happened: In the now-deleted tweet, Burry said, “Seems China moves on Taiwan in 2023, as the war in Ukraine spreads into the EU, maybe via Lithuania. Onshoring/blue-collar shortages plus global supply chain restructuring raise long-term inflation’s floor even as the bullwhip cycles lower to that end.”

Let’s peel back these four factors to better understand why the "Big Short" investor foresees long-term inflation.

1. “Seems China moves on Taiwan in 2023"

China sees Taiwan as a breakaway province, while Taiwan sees itself as an independent country.

President Xi Jinping of China has stated that "reunification" with Taiwan "must be fulfilled" and has left open the possibility of using force to accomplish this. Among the reasons China may be seeking to move on Taiwan is to take control of Taiwan Semiconductor Manufacturing Co. Ltd. TWM, which dominates the global production of computer chips.

China increased its presence in Taiwan in 2021 by deploying military aircraft into Taiwan's self-declared Air Defense Zone, where foreign aircraft are identified and monitored in the interests of the country's national security.

Also read: Hold On To Your Wallet: Fed Minutes Suggest More Aggressive Interest Rate Hikes Ahead

2. “The war in Ukraine spreads into the EU, maybe via Lithuania.”

Burry is alluding to Lithuania's announcement on June 17 that transportation of sanctioned Russian items to Kaliningrad will be prohibited. Oil, refined oil products and any technology that could be utilized for military purposes are also subject to sanctions. Cement, building supplies and metal products were also on the list.

Moscow responded quickly and forcefully, warning "severe consequences," which have not yet been detailed.

Meanwhile, in order to stop Russian aggression, U.S. President Joe Biden has committed to protecting NATO territory, including Lithuania and other NATO countries that border Russia.

3. “Onshoring/blue-collar shortages”

The New York Post linked Burry's opinion to a Bloomberg piece he tweeted about, which describes the "onshoring" trend of U.S. businesses increasingly moving production domestically in an effort to escape the snags caused by COVID-19 pandemic.

Burry refers to a supply chain phenomenon called a "bullwhip" in which discrepancies between expected demand and actual sales lead to fluctuating inventory levels. He predicted last month that there would still be a shortage of blue-collar workers, even as office workers faced further layoffs because of an impending recession.

4. “Global supply chain restructuring raise[s] long-term inflation’s floor”

A once-in-a-generation reinvention of global capitalism is taking place in boardrooms and governments as a result of the pandemic and the war in Ukraine, and supply chains are changing.

Instead of efficiency, this new form of globalization is focused on security. Doing business with nations that your government is friendly with is given priority.

As Burry pointed out, it might lead to protectionism, excessive government and rising inflation. Instead, if businesses and leaders exercise restraint, it might improve the global economy while preserving the advantages of openness.

Posted In: ChinaInflationMichael BurryScion Asset ManagementtaiwanNewsEducationTopicsGlobalEconomicsHotGeneral

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.