American investor, hedge fund manager, and physician, Michael Burry, is back on the microblogging site Twitter (TWTR), this time with his premonition of the far-reaching impacts of the “Bullwhip Effect” faced by retailers.
Burry tagged a post from CNN Business, which dealt with the issue of excessive inventory at American retailers. The last season of retail earnings was faced with the problem of record high inventory levels. As a means to solve this, a few of the retailers have decided to offer some of the goods at discounted prices.
Nonetheless, returned goods keep coming back, haunting retailers with the ever-growing challenge of restocking and reselling them. Although no company has outrightly stated this, a few retailers are considering refunding customers for the returned items while also asking them to retain the goods, as per the post.
A “Bullwhip Effect” is a typical supply chain chaos created by either over-or under-ordering goods. Every element in the supply chain plays a part in the rippling effect that is created by the incorrect understanding of consumer demand. The name is derived from a theory in physics wherein a relatively small movement at the rear end of a whip causes larger wave patterns at the tail end.
According to Burry, this “Bullwhip Effect” is already causing deflationary pulses, which in effect will lead to disinflationary readings of the CPI in the latter part of this year. This will ultimately force the Federal Reserve to stop or reverse the ongoing interest rate hikes as scheduled, as well as reflect on its quantitative tightening policy.
Burry’s tweet was flooded with replies trying to understand the depth of the problem. While a few agreed with the thesis, some argued that unless the high energy prices start declining, the prices of groceries and necessities will most likely remain elevated. A few even doubt that the Fed will reverse its hawkish policy as it is already going very slow with its rate increases.
All in all, the overstocking issue at retailers is real, and the diminishing purchasing power in the hands of consumers is too. For Burry’s thesis to play out, the only thing that remains to be seen is whether there will be a downward spiral in the prices of a broader basket of goods.
