by Michael Burry is a historic figure in investing. Many retail investors check his every word and social media post in hopes of finding clues to a good investment strategy.
His stock portfolio is scrutinized to see which companies have his confidence and which do not. Addressing some of the companies that don’t, Burry, who runs hedge fund Scion Asset Management, shorted their shares, betting that in the short term their stock prices will fall.
In times of great uncertainty, such as right now, Burry’s messages are particularly expected. Investors wonder if a hard landing – a recession – is on the horizon or if the Federal Reserve can engineer a soft economic landing.
In recent weeks, investors have displayed a kind of optimism. They seem convinced that inflation, one of the big problems of 2022, is receding.
The renewed optimism in the markets has translated into a 4.6% rise in the S&P 500 index this year, to 4,016.95 points as of January 24.
According to many experts, the easing of the prices of goods and services should encourage central banks to moderate their aggressive interest rate hikes. Such an inflection of monetary policies, they continue, could avoid a hard landing of the economy.
Except that in this optimism, investors seem to ignore some warnings, like the massive job cuts that are continuing in the technology sector, which eliminated nearly 100,000 jobs last year. This year, tech companies have already cut nearly 58,000 jobs, according to data startup Layoffs.fyi, including 12,000 by Google (GOOGL) – Get a free report and 10,000 by Microsoft (MSFT) – Get a free report.
Burry tweets what appears to be a pessimistic parallel
Burry does not share this optimism. It even seems to suggest that this is a mirage, with very tough times ahead for the markets.
The investor, who usually speaks in cryptic messages, tweeted a chart of the S&P 500 on Jan. 23 over the period from September 2000 to early 2003, essentially the dotcom bubble and the aftermath of 9/11. He circled the period from September 2001 to April 2002.
During this circled period, the S&P 500 managed to stabilize somewhat after having been in continuous decline since a high on September 1, 2000 at 1,530.09 points.
Between September 2001 and April 2002, the S&P 500 managed to rise twice to around 1,178 points and 1,176 points. But then followed four months of decline to a low of 771 points. It then rebounded to 966 points before plunging again.
Burry accompanies his graphic with a single word: “Maybe”.
The investor did not say anything else, but he seems to draw a parallel with the current period. He then deleted the post, reigniting a routine. He had stopped deleting posts when Elon Musk took over Twitter on October 27.
Burry had suggested a recession was imminent
Burry’s warning comes as no huge surprise, as earlier this year the investor predicted that the US economy would fall into recession this year, regardless of how the word “recession” is defined.
“Inflation has peaked,” Burry wrote on Twitter on January 1. “But this is not the last peak of this cycle. We will probably see [consumer price index] lower, possibly negative at 2H 2023, and the US in recession by any definition. ยป
It then describes a vicious circle. The Federal Reserve, which has raised interest rates to a level not seen since the 2008 financial crisis, will pivot and lower rates, while the federal government announces a stimulus package to help households strangled by the deterioration of the economy.
All of this will end with an upsurge in inflation, a circumstance similar to what happened during the covid-19 pandemic.
Basically, we will see a repeat of what happened after March 2020.
“The Fed will cut and the government will stimulate. And we’ll have another spike in inflation. It’s not hard,” Burry wrote.
The 2008 financial crisis, one of the greatest financial meltdowns in history, made Burry a legend. This made him an example to follow in defiance of common practice in finance.
The 2015 film “The Big Short” describes how the investor, who had no particular expertise in finance and real estate, realized that the sector had become a sandcastle. Financiers and bankers had created exotic products based on mortgage loans granted to financially fragile households and borrowers with little credit.
He decided to bet that the subprime mortgage market would crash – hence the name “Big Short”. History proved him right. This decision made Burry something of a Wall Street oracle.
He has embraced this role, judging by his Twitter handle which is Cassandra BC. For traders and risk takers, it’s kind of a party spoiler.
In recent months, Burry had warned that the economic situation was going to seriously deteriorate, that massive white-collar layoffs were looming on the horizon; and that the stock market was going to have a moment of truth, after two years of prosperity during the pandemic.
All of these warnings came true in 2022.
