Contradictory messages in the economy only prevent the right measures from being taken

The Fed has abruptly slowed down the rise in the benchmark interest rate, despite the fact that inflation is far from being at acceptable levels in the long term. Meanwhile, the symptoms of a cooling economy are evident, although no one can hide the fact that it is the most resilient economy on the planet and this will certainly help it in the worst moments. But in the meantime, its employment data is implausible and it´s not made up as they are here, where it is said that we are the kings of growth,despite of not having fully recovered from the pandemic and reaching the pre-pandemic levels and having an underlying inflation above nominal which generates a forecast of profound dysfunction between wages and productivity.

By Miguel ÁngelTemprano

February 2, 2023 Reading time: 4.30min

During the years, well, to be honest with the language, age have taught me that prestige and respect are not given to you by academic awards, no matter how important the Institutions that grant them are. What gives you prestige are the facts attributable for you, which have consistently led to the indubitable recognition of the reason for your diagnoses.

“Michael Burry predicted the mortgage crisis and became a billionaire. He repeated it recently with the short positions of some big funds. Now he predicts that the worst has yet to come. ”

In this case, I am referring to Michael Burry- character unknown to most of you but recognizable to those who have at least seen the movie The Big Short .Christian Bale, played the eccentric neurologist and economist suffering from autism, who not only predicted the 2008 economic crash, but had the “nose” to bet against the fall of a systemic sector like the one that subprime mortgages had constituted, by themselves.

Michael Burry became a millionaire or rather a billionaire at that time, but recently he earned, even more than before, with the “move” that some fans mounted against the big funds that short bet against certain companies like iRobot -the manufacture of rumba cleaner- or Game Stop- videogames company-. I think that we should have the humility to listen to someone who has succeeded twice in this way. By the way, his degrees are awarded by Stanford and UCLA.

Dignity does not allow me to say that Burry thinks like me, so I will say that I think the same as Burry.

And it is that the crisis has not ended and that the diagnoses of theSpanish ministry of economy and of theSpanish President doctor – you will see out of institutional respect President I write it in capital letters, but not the doctor- on the future of our economy have no basis any scientific.

I may not be very smart, but I’m not stupid and therefore, I don’t want my country to do badly, because that would mean that my family and myself would do worse. But it is necessary to know the reality to be able to put solutions as soon as possible.

Michael Burry says that the business market, a way of saying companies, have not yet absorbed the inflationary effects and therefore the worst is yet to come. I cannot agree more with him.

“We tend to analyze a globalized economy in an ideological concept, forgetting that all our governments have to do is create the wickerwork to grow”

How is it possible that an economy, like the American one, with inflation close to, above or below, double digits created employment at a rate of 4.5 million in the last year? At this level there are no dysfunctions in the economy, what the economy has is different stages.

For me, in economics, there are three types of data: those that everyone looks at and with a clear and significant importance; those that I don’t know why they are made because they don’t add any value; and those that have a significant hidden value, but that the communicators either do not understand or do not give importance to.

Within the latest, there is one that I look at regularly because it expresses the real trust of the individual in the economy, beyond the direct question that an interviewer asks the consumer, and it is the number of times that workers change their average of employment on each period.

“When in the USA there is fear of changing companies, something could go wrong”

Someone who is afraid of the immediate future of the economy does not move from the chair. Following the Spanish proverb of “Virgencita, Virgencita, let me stay as I am”. Well, this indicator has dropped significantly in the USA in the last four months.

But it is that two other of these data, perhaps not so hidden, such as average consumer spending and construction of new homes have plummeted in the USA. This will undoubtedly generate a drop on the companies income and therefore, a drop on employment, as is already being seen in massive layoffs, first in the technology, then in the finance sector and now in industry sector.

And the reader, especially the ideologically motivated one, will tell me: and what the heck does this have to do with Spain? Here we are doing very well, the Government says so.

Well, without ideology, we would have two things. The first: whether we like it or not, our economy is a satellite of the American one. If America sneezes, Europe, therefore, Spain, are hospitalized from pneumonia; and the second: our economy is the only economy in the first world that has not recovered from the pandemic, reaching pre pandemic levels.The explanation is simple, our economy is based on a sector that is very affected by neighboring economies, which is tourism.

The other day on national TV Channel, a quite famous and ideologized journalist told me that yes, that is the explanation that the government does not comply with, to which I replied that the governments are there to create the wickerwork of the economy so that the private “industry ” creates employment -I did not say this,but I am doing it now, yes the one that creates employment is the State, what we are headed for is a communist economy, whose success we can see in the former USSR, and the greatest creator of employment in Spain right now is the State- .

A mission of any responsible and competent government is to prevent the existence of systemic sectors, that is, sectors that in the face of a crisis drag down the rest of the sectors of the economy.

Well, in Spain the tourism sector is a systemic sector, mainly due to its size and nothing has been done to change the trend. So it would be better for no one to presume that we are going to be the country that grows the most, since in this way they are acknowledging their incompetence, firstly because if you grow more it is because you have fallen more and you have not been able to get up fast enough and second, because you have not done anything to prevent another slap in the face, even to neighboring economies, but in any case to foreign economies, from knocking us down again.

“The fact that there are no systemic sectors should be one of the most important missions of the rulers, but on the contrary, it tends to be to stay in power”

So, now you will understand why to analyze my economy I analyze the American one.

When the American economy entered a technical recession, that is, it fell consecutively for two quarters, I said publicly and in various media that the American economy was not in real recession.

This led me to various criticisms for lack of equanimity. It is true that I have many American friends who live there. It is true that the majority are Democrats, and it is true that if I had been able to vote, I would have voted for Biden. But I’m not American, I don’t vote there, and the Democrats don’t pay me.

The recession is not a number, it is a state of the economy. I defined the technical recession that they had,months ago, as the effect of a spring that you let go of after having stretched it before returning to his place. Normally overdoing it. But now this is not what ishappening, and I invite the reader to a simple reflection about it.

The FED has launched a race, in my opinion, disproportionateof raising reference interest rates and now they abruptly stopped, in such a way that in 2022 they rose 4.5% while they expect to rise only 0.5% this year. But meanwhile, inflation, the reason for which you raise the reference interest rates, is far from being controlled.

Why do they do this? Could it be because the signs of a cooling off in the economy are being stronger and more visible than expected? Could it be that a tremendous cascade of layoffs in large corporations anticipates another similar one in small companies? Could it be that they consider an excess cooling of the economy to be more difficult to counteract than expected?

“When core inflation is higher than nominal, evil has spread throughout the economy”

Well, these are the reflections of Michael Burry, which I have the honor of intellectually sharing with him and humbly transmitting to you.