Investor Michael Bury, played by Christian Bale in “The Big Short”, has identified the “bullwhip effect” in retail. If the acquittal is true, the effect could still cause the Federal Reserve (FED) to reverse its policy of increasing quantitative restrictions and increased interest rates.,
The Fed is currently pursuing a policy of aggressive interest rate hikes in an effort to contain inflation of 8.6% – the highest in 40 years. In May the Fed voted to raise interest rates by 0.5%, the biggest rate hike since 2000. In June, a further increase of 0.75% brought rates in the range of 1.5% to 1.75%.
a volatile market
Michael Bury, head of Scion Capital Management, has made a name for himself for making big market calls that have ultimately been proven correct. Bury correctly predicted the 2008 financial collapse that allowed him to successfully reduce the housing market by $800 million.
Therefore, declarations of acquittals carry some weight. On June 27, Bury posted a CNN article on his Twitter account: “Just keep your returns: Stores pay you not to bring unwanted items back.”
Many major retailers, including Target, Walmart, Gap and American Eagle Outfitters, now have so much inventory that the cost of storing it is becoming an increasingly heavy burden, according to CNN. Instead of adding to that burden with returned merchandise, retailers are looking at giving customers their money back and asking them to keep the unwanted item.
acquitted Vaccination On this supply-chain phenomenon otherwise known as the bullwhip effect:
“This glut of supply in retail is the bullwhip effect. Google it. Worth it for your investment efforts. This would cause deflationary pulses–> deflation in CPI later this year–> Fed rates and QT–> cycles would reverse itself Is.
The bulk of coverage on rising inflation has focused on the Federal Reserve’s policy of quantitative tightening as a means of reversing the trend. Bury now points to the rising cost of retail storage as another possible reversal mechanism.
As the value of the dollar has slipped, the amount of goods Americans buy with their money has decreased. This means more goods are now in warehouses, increasing storage costs for retailers. This is putting pressure on retailers to lower prices in an effort to lower storage costs.
a very complex machine
The American economy is a highly complex machine consisting of many moving parts. Whether the Fed chooses to reverse or slow quantitative tightening will depend on how much of the market is exposed to the same “bullwhips”.
If other market verticals experience similar issues, the Fed may have reason to correct course once again and lighten its touch. If not, Americans should at least prepare themselves for further hikes in interest rates for the next few months.
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