Michael Burry says sell and Jim Cramer says buy. As the Fed meets, here’s how they could both be wrong on stocks.

Michael Burry says sell and Jim Cramer says buy.  As the Fed meets, here's how they could both be wrong on stocks.

Michael Burry, the Scion Asset Management hedge fund manager who correctly forecast the 2008 financial crisis, Tuesday night sent a one word tweet: “Sell.” Burry didn’t elaborate, but it’s not hard to fill in the blanks.

Assets like bitcoin and ARK Innovation ETF rose in January, in an apparent race to the trash on the prospect that the Fed is going to move to rate cuts soon, which is too much for a value-focused investor like Burry.

At the other end of the spectrum, Jim Cramer says it looks like we are now in a bull market. “If we’re in a bull market, and I think we are, you have to prepare,” said Cramer, whose penchant for ill-timed comments has spawned a fund seeking Securities and Exchange Commission approval to bet against his points. of sight. “We have to prepare for the down days now because in a bull market, there are buying opportunities,” the CNBC commentator added.

Burry and Cramer may not be right.

Take the last day of January, on which stocks rose the data showing that the employment cost index slowed at a quarterly rate of 1%, which was below expectations and, importantly, below the 1.2% in the third quarter. Yet at the same time, the index is advancing 5.1% year-over-year.

Neil Dutta, head of economics at Renaissance Macro Research, was explaining to Barry Ritholtz from the Masters of Business podcast what that number means to the Fed. “For some reason, the Fed sees labor markets as the conduit for [to inflation]. And if compensation growth is working, right now, let’s say it’s 5%, and productivity is 1%, one and a half, you’re basically talking about a three and a half percent inflation environment,” he said. Dutta.

Dutta, who began working with David Rosenberg at Merrill Lynch, later returned to the subject. “If wage inflation continues to be four and a half, 5%, it will be difficult [for the Fed to cut]. I mean, I hate to say it like that, it just means the disinflation you’re going to see this year is also transitory.”

If Dutta is right, that means the Fed won’t lean toward rate cuts in the second half of the year, which the stock market probably won’t take well.

All of that said, Dutta is not a stock market bear, given the corporate earnings backdrop. “How do you get an earnings recession if nominal growth is 5%? Has anyone mentioned about the dollar? Like, the dollar is out 10%. Doesn’t that have a mechanical effect on corporate earnings for multinationals listed on the S&P 500 SPX?,
” I ask.

“And I guess the other thing is, in a weird way, like interest rates going down, and people who are betting on the Fed to back off, it drives the housing market up because you see XHB homebuilding stocks.
in a maximum of 52 weeks now.”

Dutta himself did not make a stock market forecast in the interview with Ritholtz, saying he is a business economist and not a strategist. But there are others who have said that 2023 could be more of a pause than a big move in either direction. “Disinflation and a further decline in 10-year yields could (at least partially) provide compensating P/E multiple support,” Nick Reece, a portfolio manager at Merk Investments, said in a note last week. “Crosscurrents can lead to a sideways ‘time correction’ in the market, albeit with the potential for downside volatility along the way.”

The market

US Stock Futures ES00

were weaker before the Fed decision. The 10-year Treasury yield BX:TMUBMUSD10Y
fell to 3.47%. Bad news for your breakfast: Egg prices have skyrocketed and now KC00 coffee futures
They are up 12% from the previous five sessions.

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The buzz

He The Federal Open Market Committee’s decision is due at 2 pm ET, followed by President Jerome Powell’s press conference at 2:30 pm No need to worry about the dot plot. There are almost universal expectations that the Fed will raise rates by a quarter point, so the question is how much more does the central bank indicate it is ready to take interest rates?

There is a flurry of data releases ahead of the Fed announcement, including the Institute for Supply Management manufacturing index and job openings. ADP reported that private sector payrolls slowed to 106,000 in January, though the report noted that California was dealing with record flooding and back-to-back storms brought ice and snow to the central and eastern US in the reporting week.

There were a number of interesting post-earnings moves after Tuesday night’s results, mostly lower. AMD Advanced Micro Devices
surged after microchip maker reported Stronger-than-expected sales and earnings.

Owner of Snapchat Snap SNAP
slid lower after a mixed fourth-quarter report, as the company did not provide guidance. META meta platforms,
which reports its results after the close, fell close to 1%.

electronic arts EA
shares plunged as the video game maker revealed disappointing forecasts and announced a delay on an anticipated title. Match Group MTCH Dating Service Operator
it also slumped as it warned of challenging conditions for at least the first half of the year. Western Digital WDC,
the maker of data storage devices, warned of a challenging pricing environment, as well as “continued inventory digestion in the cloud.”

President Joe Biden will meet with House Speaker Kevin McCarthy as the two sides head toward a debt ceiling collision. The Consumer Financial Protection Bureau issued a proposal to reduce credit card late fees.

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best tickers

Here were the most active stock market tickers at 6 am ET.


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The graphic

Torsten Slok, chief economist at Apollo Global Management, says that none of the indicators commonly used by the group that determines whether the United States is in recession suggests that there is a recession right now. “It still looks like a soft landing,” Slok said.

random readings

Wow, a Chinese dealer put a porsche car for sale for $18,000, instead of $148,000.

Connecticut is ready to exonerate witches accused more than 375 years later.

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