Be careful! Is the US stock market really going to crash? "Stock God" and "Big Short" are both preparing.

According to Dolphin Research, Robert Kiyosaki, the author of the popular financial book "Rich Dad Poor Dad," believes that a series of recent actions by Warren Buffett and Michael Burry, the prototype of the movie "The Big Short," indicate that they are preparing for a stock market crash and buying opportunities at low prices. Kiyosaki stated in an interview, "Warren Buffett is sitting on $147 billion in cash, all of which is invested in short-term US bonds. Michael Burry is currently shorting the market. There is a lot of money waiting on the sidelines."

Buffett's Berkshire Hathaway (BRK.A.US) sold $8 billion worth of stocks last quarter and slowed down its share buybacks. This has increased its cash and US Treasury holdings by 13%, reaching a near-record $147 billion.

Buffett has not explicitly predicted a stock market crash, but in the past three quarters, he has sold a net $33 billion worth of stocks, increasing Berkshire Hathaway's cash reserves by $38 billion. This buyer at low prices now has enough "gunpowder" to purchase undervalued stocks and acquire companies if the market really declines, just as he did during the Great Recession when he made deals with Goldman Sachs, General Electric, and many other companies.

As for Burry,

he has repeatedly warned that the US stock market is in a historic bubble and predicted a major crash equivalent to the "mother of all crashes." His recent short positions have sounded the alarm, and he is one of the few who predicted and profited from the 2008 US real estate market crash. Like Buffett, he is also a value investor who excels at finding undervalued companies and seeks to profit from selling.

Kiyosaki believes that Buffett is hoarding cash while Burry is shorting benchmark stock indices because they anticipate a stock market decline. While Buffett may simply feel that there are no stocks worth buying, and Burry may be hedging his own investment portfolio, they certainly could believe that the stock market is overheated and about to face difficulties.

The US inflation challenge remains unresolved

Although the market is still expecting a soft landing and a pause in interest rate hikes, there have been recent voices in the market suggesting that US inflation may have bottomed out, as the US economy continues to show resilience, and concerns about macro demand reigniting inflation persist. The resilience of the economy carries the hidden threat of a potential resurgence in inflation and further interest rate hikes. Factors such as the recent rebound in crude oil and natural gas prices to new yearly highs, the first rebound in the super core inflation index (excluding housing and energy) since the beginning of the year, higher-than-expected July PPI data (the first increase since August last year), and signs of a recovery in the US housing market continue to hinder inflation from falling to the Federal Reserve's 2% target.

Moreover, the "terrifying data" released this Tuesday has deepened the market's concerns mentioned above. Retail sales surged by 0.7% in July, the largest increase in six months, surpassing the 0.4% predicted by economists surveyed by the media. Despite the Federal Reserve's continuous interest rate hikes for over a year, the sharp increase in retail sales in July has provided further support for some policymakers to raise interest rates again in the last four months of this year, pushing the yield on 10-year US Treasury bonds to its highest level since 2008. Rising yields are generally seen as having a negative impact on the US stock market. However, it is still unclear how high they need to rise in order to have such an effect, which largely depends on the speed of the rate increase. Despite the rise in the 10-year yield from its low point of 2.79% on August 15, 2022, the US stock market has still managed to rise in the first half of this year. Now, there is concern that if the 10-year yield further increases to above 4%, it will continue to push up the capital costs for small businesses and consumers, and make the stock market more unstable. Quincy Krosby, Chief Global Strategist at LPL Financial, said, "This good news is actually bad news, as Tuesday's data has 'shaken' both the already sensitive US bond market and stock market."

Although there is increasing talk in the market about a "soft landing" for the US economy, the outlook is not without risks. One of the risks is that if inflation heats up again in an economy that is weaker than expected, the Federal Reserve may need to adopt a stricter tightening policy, which would trigger the recession that Fed officials hope to avoid.

Furthermore, the recent strong US consumer spending and the slowdown in consumer inflation do not necessarily mean that a "soft landing" is imminent. CICC previously pointed out that the greater slowdown in US CPI in July is more related to supply improvements, and many of them are input-related and do not fully reflect the resilience of US economic domestic demand. For example, the decline in prices of used cars and furniture and appliances is related to supply chain improvements, while the decline in airfare prices is related to the previous drop in oil prices, both of which are input-related anti-inflation factors. On the other hand, the slowdown in core service inflation, which represents more domestic demand, excluding rents and airfares, is not significant, indicating that the internal demand of the US economy still has resilience. This means that although inflation is slowing down, it may be difficult to change the high US interest rates (high for longer).

Marko Kolanovic, Chief Global Market Strategist at JPMorgan, pointed out in an investor report on Monday that although the US July CPI data released last week was broadly in line with market expectations, the inflation trend remains uncertain. Marko Kolanovic said, "In the coming months, we expect core goods inflation to decline, but we believe that this trend is unlikely to continue, as commodity prices are rising with the recovery of the global industrial sector. In addition, core service inflation may still be sticky. We have not yet escaped the inflation dilemma. Although the July CPI data shows a continued decline in inflation, we believe it is still too early to declare victory in the fight against inflation."

It is worth mentioning that Marko Kolanovic has been bearish on the US stock market this year. He warned at the end of last month that the delayed impact of significant interest rate hikes by central banks around the world, reduced consumer savings, and an "unsettling" geopolitical backdrop will trigger a new market downturn and volatility.

The global economy's "canary in the coal mine" is also sending ominous signals. South Korea, as one of the world's largest exporting countries, has its data serve as a barometer for international trade trends due to its diverse range of exported goods. In July, South Korea's exports continued to decline, posing obstacles to the global trade recovery. According to data released by the Ministry of Trade on Tuesday, South Korea's exports fell by 16.5% compared to the same period last year, slightly exceeding economists' expectations of a 15% decline. Overall imports decreased by 25.4%, resulting in a trade surplus of $1.6 billion.

Meanwhile, due to weak overseas demand, Japan's exports experienced their first decline in over two years. Data shows that Japan's exports in July decreased by 0.3% compared to the same period last year, marking the first decline since February 2021. This was primarily caused by a significant drop in shipments of chip manufacturing equipment and components. Economists had previously predicted a 0.2% decrease in export volume. Therefore, dragged down by weak demand for light oil and chip manufacturing equipment, Japan's exports in July recorded their first decline in nearly two and a half years, highlighting the significant risks of global economic recession.