You know Dr. Michael Burry. He was portrayed in “The Big Short” on how he turned himself into a billionaire with his prediction that the housing/mortgage bubble would burst in 2008. You can tell what he is thinking about the economy, because he has to file 13-F with the Securities and Exchange Commission. There is a lot of press concerning him, because of his big bet on the 2008 economic meltdown and his prowess as a prognosticator.
Burry has further enhanced his aura by selling at the top of the bubble in the meme stock GameStop. He sold Twitter at the top before the current Muskesque soap opera of a bull in a china shop.
A couple of quarters ago, he sold all of his stock. He said that the stock market was in for another Armageddon. Then he relented and bought one stock. It was GEO, a private company that provides prison and mental health services to governments. He bought at an average of $6.65 and now it is trading $9.82. Not a bad return. This past quarter, he furthered his bets into more prison stock. It’s up 28.8% in the last month, but the YTD performance is about 21%. Still not bad.
So are the only profits in the stock market related to prison gulags for socio-economic under-privileged, law-breaking demographics. I beg to differ. I myself have predicted and had return like Burry had, using the AI/NLP/KnowledgeGraph tools that I use to gather data for these posts. When the supply chains had trouble producing chips for new cars, used car values shot up 42%. (It helps that I have family in a big used car wholesaling business). Knowing used cars, they regularly need new parts, so I invested in GPC and Visteon — two auto parts makers/sellers. Visteon is up 38% in the past 6 months, and GPC (the parent of the majority of NAPA parts distributors in the US) is up 36% in the past six months. I just wish that I had a fund to trade. Sure beats a mutual fund, or even a hedge fund for that matter.
So is Burry right? Are we headed for economic armageddon? Let’s take a page out of noted statistical election & sundry prophet Nate Silver and his organ fivethirtyeight.com. His methodology is gather as many polls, indices, statistics etc. and put them in his mixmaster algorithm to come up with predictions. So, let’s look at some of the arcane esoteric indicators.
The Men’s Underwear Index
Alan Greenspan is a real believer in the men’s underwear index. The theory is that in coming times of trouble, men being men, and being attached to their familiar worn tighty whities do not buy new underwear when times are tough. They make do with their gray, bio-hazard, threadbare drawers until the elastics give out and they become more of a physiology air conditioner and expositor rather than undergarments. The Men’s Underwear Index dropped in November/December 2021. It rebounded to a new high in January 2022 and stayed level. A good sign.
The Champagne Index
The Champagne Index measures the price of champagne. It peaked in September 0f 2022 and dropped slightly. Same thing for fine wines. It should peak over Christmas again. Since the income disparity in North America grows, this would indicate that the slight drop is due to middle class folks not buying champagne, but as we all know, the rich get richer. The drop in middle class consumption is an indicator of inflation, but affecting only the lower socio-economic classes.
So what does this all mean for where the economy is going? A JP Morgan analyst writes that the rest of 2022 will continue to be a battle between positives and negatives. Corporate fundamentals are relatively good, even with inflation and in spite of the Federal Reserve. This is proven by Burry buying stocks again, but not all stocks.
So it is safe to predict that we won’t see an economic armageddon, unless madman Putin unleashes some of his nuclear arsenal. Then when the time comes, and the ICBMs are incoming, you can duck, put your head firmly between your legs, and kiss your ass goodbye. Otherwise it is more of the same of what we are seeing now. The smart and the lucky are doing okay in respect to the markets.