The legendary investor is one of the Cassandras of Wall Street. His warnings are closely watched in this time of uncertainty.
In this time of uncertainty, investors and companies are looking for any sign that could save them from the worst.
Inflation, which is at its highest in 40 years, remains stubborn.
The Federal Reserve (Fed) has promised to continue to aggressively increase its interest rates to tame this rise in the prices of goods and services which has a clear impact on the purchasing power of households.
Critics of this monetary policy are getting louder. They believe that the central bank acted too late and that now it risks causing a recession in the best case scenario and deflation in the worst case scenario.
“The last two years [are] one of the biggest policy mistakes in the 110-year history of the Fed, by staying so easy when everything was booming,” Wharton professor Jeremy Siegel told CNBC on Sept. 23.
“I am very upset. It’s like a pendulum. They were way too easy through 2020 and 2021, and now ‘we’re going to be real tough guys until we crush the economy.’ I mean, that is just to me absolutely, poor monetary policy would be an understatement,” Siegel lambasted.
The ‘White-Collar Recession’
As the unknowns linger, legendary investor Michael Burry, known for betting on the subprime mortgage meltdown that sparked the 2008 financial crisis, continues to sound the alarm about where things are going wrong.
He just announced that a bubble is bursting. And this bubble is that of the white-collar workers, who are working behind a desk in the service sector. These suit-and-tie workers avoid physical labor and tend to earn more money than blue-collar workers. Many white-collar workers were forced to work from home when the covid-19 pandemic hit.
“Mr Big Short” as he is nicknamed after the film “The Big Short”, which retraced in 2015 his bet, just announced that a bubble is bursting. And this bubble is that of the white-collar workers, who are working behind a desk in the service sector. These suit-and-tie workers avoid physical labor and tend to earn more money than Blue-collars. Many white-collar workers were forced to work from home when the covid-19 pandemic hit.
“The white collar employment bubble is bursting right before our eyes,” Burry said on Twitter on September 25. “And the longer it takes the redundancy to disappear, the more permanent to disappear, the more permanent the decline in employment will be.”
He added that “WFH [Work from Home] will in time be seen as a culprit.”
Many economists believe that the next economic downturn will affect white-collar workers more than blue-collar workers who were hard hit by the shutdown of the economy at the height of the pandemic.
Waves of Job Cuts
This recession expected in 2023 should have signs of the downturn of the 1990s. This downturn had been particularly devastating for white-collar workers than for blue-collar workers.
White-collar workers will be the most vulnerable because of the place taken by automation, via software, within companies, economists say. In addition, jobs lost in service industries, which often employ the most white-collar workers, during the pandemic have returned to pre-pandemic levels. This means that these industries no longer have much room for expansion and will therefore pay the price in the event of a recession.
“It will be mostly a white-collar recession. And the blue-collar recession will not be in the same places that we saw in the past,” William Lee, chief economist at the Milken Institute, told Marketwatch in July.
He added that demand for blue-collar workers in service and manufacturing will remain strong, which will protect them from a recession.
“The Joe Six Pack, who used to be the first guy to be laid off, can be less concerned if he has one of these jobs that are in high demand, like the Amazon warehouse worker, delivery guy, the guy who’s working in the ghost kitchen.”
The tech and crypto sectors which often employ white-collar workers have recently announced waves of job cuts. Shopify (SHOP) – Get Shopify Inc. Class A Subordinate Report, Coinbase (COIN) – Get Coinbase Global Inc Report, Crypto.com, Robinhood have recently announced layoffs.
Social media giant Meta Platforms (META) – Get Meta Platforms Inc. Report and Alphabet (GOOGL) – Get Alphabet Inc. Report, parent company of Google and Youtube, are expected to cut jobs in the coming months.
The major Wall Street banks are also planning savings cuts.
Goldman Sachs is planning on cutting several hundred jobs this month, according to reports.