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Michael Burry. Jim Spellman/Getty Images Several top-flight investors and commentators were sounding the alarm on high, prolonged inflation only a few weeks ago. Now, some elite market-watchers are predicting prices will rise more slowly in the coming months, and deflation could become the bigger risk.
Michael Burry, Cathie Wood, Paul Krugman, Jeremy Siegel, and Tom Lee have all weighed in on the fading inflation threat in recent days. Here’s a roundup of their comments:
Michael Burry
Kevin Mazur/WireImage Michael Burry expects American consumers to virtually exhaust their savings by the end of this year, as they continue to save less and borrow more to cover higher food, fuel, and housing costs.
The investor of “The Big Short” fame predicts consumer spending will decline as a result, while retailers will slash prices to get rid of their bloated inventories, slowing inflation in the coming months.
“Deflationary pulses from this- -> disinflation in CPI later this year –> Fed reverses itself on rates and QT –> Cycles,” he tweeted, suggesting the Fed might cut rates and ramp up its bond purchases again once the inflation threat fades.
However, the Scion Asset Management boss also suggested that shortages of blue-collar workers, and the surge in onshoring among US companies, could lead to higher long-term inflation.
Cathie Wood
Catherine Wood, chief executive officer and chief investment officer, Ark Invest, speaks during the Milken Institute Global Conference on October 19, 2021 in Beverly Hills, California. Patrick T. Fallon/Getty Images “Inflation has been a bigger problem but I think it has set us up for deflation,” Cathie Wood said in a recent CNBC interview.
The Ark Invest chief noted that chronic supply-chain issues, and Russia’s ongoing invasion of Ukraine, have fostered higher inflation this year.
However, she asserted that even elite retailers such as Walmart and Target are struggling to get rid of excess inventory, raising the prospect of widespread price cuts and deflation in the coming months.
Wood added that consumer sentiment has plunged to record lows, in part because Americans are bristling at painful inflation. She suggested that trend could also pull down prices.
Paul Krugman
Brendan McDermid/Reuters Paul Krugman dismissed the idea that inflation is spiraling out of control in a Twitter thread this week.
The economist and columnist, who won the Nobel Prize for economics in 2008, pointed to Treasury-bond data suggesting investors aren’t expecting inflation to remain elevated for long.
“Not sure people realize how dramatically the runaway inflation narrative has now collapsed,” he tweeted, citing top investor Bill Ackman’s recent warnings about out-of-control inflation and unanchored inflation expectations.
Krugman added that upcoming inflation data for June might not show that expectations have declined, as retail gas prices didn’t peak until mid-June, and are yet to match the recent decline in wholesale prices.
Jeremy Siegel
Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania. Scott Mlyn/CNBC/NBCU Photo Bank/NBCUniversal via Getty Images Jeremy Siegel warned inflation may have peaked, and the Fed might be going overboard with its interest-rate cuts and balance-sheet reductions, in a recent CNBC interview.
The Wharton professor noted that prices of commodities and housing have dropped in recent weeks, suggesting inflation is waning. However, he emphasized that it will take time for slowing inflation to be fully reflected in official data.
“The Fed has to be careful not to slam on the brakes and just crash this economy,” Siegel said. “They have to realize most of the inflation now is behind us, even though it’s going to go through the official statistics for the next six to 12 months.”
Tom Lee
Tom Lee was formerly JPMorgan’s chief equity strategist. Brendan McDermid/Reuters Tom Lee, the research boss of Fundstrat Global Advisors, suggested the inflation threat is receding in a note to clients this week.
Lee highlighted the recent price declines for oil, lumber, cotton, copper, and other commodities. He alo noted that a jump in mortgage rates has pushed down house prices, while a glut of retail inventory has led to large discounts for apparel, appliances, and other goods.
“Can inflation accelerate if inflation expectations and inflation leading indicators are tanking?” Lee questioned. “If a ‘disinflation’ trend is underway now, this argues inflation was indeed ‘transitory.'”
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