Michael Burry warns the 'mother of all crashes' is coming
markets.businessinsider.com
markets.businessinsider.com
The last two things I recall from Bury were his call last year that Tesla's stock price was ridiculously inflated, which he was proven right by the market once Tesla's price crashed from around $900 to around $600 at the moment, and his warning that passive investments were/are inflating stock prices in a similar pattern that he saw as a precursor to the subprime crisis.
Do you have any example of what you consider Burry's biggest failed prediction? Because otherwise your comment boils down to an empty ad hominem
Aside from the housing bust and Tesla bearishness (which again is hyperbolic - "ridiculously inflated" would be 80% crashes like what we've seen in the dot-com bust or Bitcoin crashes), he predicted large-scale water shortages in 2015; a bubble in passive investing in 2019; hyperinflation in 2020; and now this stock market crash.
I happen to think he's fundamentally right about all of these, but we aren't yet suffering from water shortages in a way that'd appreciably move the price; the S&P 500 is more than 50% higher than in 2019; we've seen high inflation (~5% annualy) but nothing close to hyperinflation (~50% monthly) so far; and about a -2.5% drop in the stock market over the last 3 days, which has otherwise set a record high.
Valuations in meme stocks and crypto are high enough that I wouldn't want to go into them now, and I also think that we will see a huge stock market crash when & if the Fed ever raises interest rates. But his 2022 prediction for "the mother of all crashes" seems very early to me, given that the Fed itself is forecasting 2 rate hikes in 2023. And if his 2020 prediction for hyperinflation pans out, we won't see a stock market crash, we'll see the stock market go exponential (as denominated in dollars) as people flee cash and seek alternative forms of currency.
Ultimately, this nonsense preys on the public's misunderstanding about how markets work, and that all financial positions are bets, which express a measure of certainty in an uncertain outcome.
In 2006 he found excessive margin being applied to housing. He saw that the Fed was raising their rates. He knew that it was inevitable that this would cause foreclosures. There were massive bets bigger than anything the system could bear, and in fact his bets were a piece of it. Was he early? Yes. Had he been later, would he have got a bigger return? Perhaps not. It was only that he was so early that no one else had a clue that he was given such amazing odds.
Now he sees the bubble is happening because passive investing into the stock market through our 401k's has driven the smart money of the money into front-running that passive investment[0]. He's saying the massive 30% increase in the money supply after CO-VID is going straight into the stock market and that flow is drying up. Every stock is now far above their value, with their 'value' being their net future risk adjusted returns.
Burry sees that this is unsustainable, and he sees that this bubble is now two times of magnitude as large as any other bubble ever created. When a small percentage of people pull their money from the being invested in passive funds, they will quickly overpower the buy pressure and the markets will drop, causing others to pull until they go to 0. His expectation is that once this starts to burst, the Fed is going to have no other choice than to do the same exact thing they did last time, and they have to react faster than last time with no way to think about it. They will print beyond ever thought possible or the system will fundamentally collapse. This is why he mentions Weimar Republic inflation. If 2008 was the previous largest bubble and that costs us 4T, two magnitude is a 400T problem.
So he's asking what the economy will do when 400T is created in the blink of en eye. He's got his money where his mouth is. And particularly importantly, nothing he is saying now can affect the future. Either we are the Titanic, and we already hit the Iceburg, or he's wrong this time. Maybe he's early. But is he wrong?
At its all-time high in 2007 the S&P was roughly at 1,500 points. It returned to this value in 2013 I believe, and is now over 4,500.
So in hindsight you could have easily just put all your money into a S&P ETF at its 2007 "all time high" and still would be doing great today.
Looking at his scion capital quarterly report, it seems he has a lot of his portfolio in puts (40%?) then the next 30% in calls then a mixed bag of stocks.
https://whalewisdom.com/filer/scion-asset-management-llc#tab...
to me it seems he is more bearish on Tesla than the market? So it is hard to say he is against the entire market...? Judging by the gigantic position he has against them.
Can you clarify what you mean here? Does he have other positions like puts on crypto?
As for Bitcoin, he never said that it would cause a crash, merely that when the stock market does go down Bitcoin will go with it(because of it's reliance on leverage that will get called away) and the effect will be to wipe out all the kids and retail investors that have bet on it.
How do you profit on Bitcoin crashing? As you recall, he specifically was worried in 2006 about the banks going under, and Bitcoin has that problem to a much larger degree. If you bet against Tether and Tether goes to 0, there's a good chance all coins go to 0 and you won't be able to receive your winnings. Sometimes the only winning move is not to play.
This remark sounds very ignorant and miopic. Even with the "growth stock" interpretation, it's very hard to ignore the fact that Tesla's market share is shrinking with increasing competition in Europe and China, and on 2021Q1 Tesla reported $438M profit while recording $518M in revenue from sales of regulatory credits and $100M in Bitcoin sales.
I understand the importance of the "growth stock" narrative. Even pyramid schemes are handsomely profitable to investors provided that the next guy is left holding the bag. However, as Burry stated quite clearly, Tesla's numbers are far from healthy and it's market valuation is not justifiable with a rational basis.
Sell futures?
(I'm not GP nor really disagreeing with anything else you said.)
I'd argue one could also interpret this as "putting his mouth where his money is."
Continually predicting the market is about to crash seems to be his thing.
His predictions sound spot on.
Here's what Burry said about the state of the economy back in 2017.
> Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.
Now that half a decade passed between that article was published and right now, do you see any failure in the analysis?
It's a story the press love & he has been type cast.
Also with 10x-50x multiples, liquidations are going to happen way sooner than the apocryphal "zero". A move of 2.5% - 10% is enough to get a margin call.
You can't just ignore this massive mother of all bubbles that's kept inflating massively since the last year and you can't ignore that the S&P 500 had a dip below it's bottom trendline.
You can't ignore that summer is here, lockdown restrictions are being lifted pretty much everywhere and that people will want to spend their money on holidays.
You can't just ignore the billions of dollars which have been pumped into lumber, houses, stocks, cryptos, etc.
People will want to cash out when they need the money.
It's summer now and people could definitely use the money.
This isn't rocket science. At all.
Selling is happening, slowly, so it's being bought up by everyone else who doesn't know better. Once the buyers know better things are going to go down much faster. Give it another week or two. Maybe a month.
The dip below the bottom trendline of the S&P 500 is worrying and ignoring it is literally dumb.
you'd expect at least some of the medium/small fish to be getting out. Such as hedge funds who manage funds in the billions.
not saying i disagree that things are overvalued, but i think its basically impossible to predict if/when there will be a correction/crash. I thought things were overvalued in 2016 and they just kept going up.
if you believe what youre saying you should 100x leverage up on a bet on the crash since its so certain.
I don't leverage. I'm not greedy. Unlike most people I only care about having enough plus a bit. Leveraging and betting on market movement is for greedy people, of which I am not one.
Just wait and thanks for your opinion.
...or skillful people.
I’ve been seeing this prediction form Burry for a while.
Wasn't a lot this knocked out when Bitcoin crashed to $30k? How much still remains?
Bitcoin's price was over $60k a couple of months ago. After it crashed, it tanked to around $30k.
So to you a market valuation tanking 50% is not a crash, and it would need to tank over 80% to qualify as one?
That means nothing.
> 50% isn't uncommon
So crashes are common on speculative bubbles. Does that mean these crashes are less of a crash?
Stop trying to pick a fight.
I will put my hand up, happy to admit I don't know anything.
Can someone explain why crypto in particular has a lot of leverage? As far as I understood most people were just buying the underlyings directly and holding on.
So "the mother of all crashes is coming" is like saying "we are having weather!"