Sipley worked as an analyst at Burry’s hedge fund between 2003 and 2006, and returned to serve as Scion’s director of equities in 2013, his LinkedIn shows. He fought an aggressive form of brain cancer for eight years and died in 2019, according to his obituary. The Scion boss joked he was early with his prediction, just as he was during the mid-2000s US housing bubble. Burry noted that 12 of the 20 largest one-day rallies in the Nasdaq index took place as the dot-com bubble burst, while nine of the S&P 500’s 20 biggest one-day rallies occurred in the aftermath of the Great Crash in 1929. Such options give the right to sell shares at a fixed price in future, and are typically bought to express a bearish or defensive view.
Michael Burry, the hedge fund manager of “The Big Short” fame, rang the alarm on the “greatest speculative bubble of all time in all things” in the summer of 2021. He warned the retail investors buying up meme stocks and cryptocurrencies that they were headed towards the “mother of all crashes.” Burry’s latest chart and comment suggest he sees shades of the stock market’s surge in early 2001, when rates were 6%. He seems to expect both the S&P 500 and the Fed Funds rate to eventually tumble — as they did during the dot-com crash — with the Fed cutting rates as the economy weakens and asset prices slump. Burry has previously warned the S&P 500 could plummet by more than 50% to around 1,900 points.
- Michael Burry, of “The Big Short” fame, reflected on the origins of his iconic bet against the US housing bubble, and praised a late colleague who helped him research the wager, in a tweet on Sunday.
- While he partially restocked Scion’s portfolio in the third quarter, Burry rushed to disabuse his followers of any notion he’s optimistic about the market outlook.
- In tweets posted in May 2022 then subsequently deleted, Burry took credit for calling the sell-off, explained why he expects further declines, and cautioned against buying into relief rallies.
- The position against SOXX represents nearly half of Scion’s portfolio as of the most recent filing.
- Burry is best known for his billion-dollar bet on a crash in the US housing market in the mid-2000s, immortalized in “The Big Short.” Christian Bale portrayed him in the movie adaptation of the book.
Burry said the flow of cash from actively managed funds to index trackers and the boom in day traders sharing tips on social media and touting meme stocks had helped to fuel the market upswing. “Speculative stock #bubbles ultimately see the gamblers take on too much debt,” the investor tweeted along with a chart showing the S&P 500 index and levels of margin debt both soaring in recent months. Rampant speculation and widespread betting with borrowed money have driven the stock market to the brink of collapse, Michael Burry said over the weekend. “Difference between now and 2000 is the passive investing bubble that inflated steadily over the last decade,” he tweeted at the time. “All theaters are overcrowded and the only way anyone can get out is by trampling each other. And still the door is only so big.”
Stocks are on a dangerous trajectory
The email directed Sipley to analyze a list of mortgage-backed securities and pinpoint the riskiest ones — those linked to mortgages at high risk of default, but not priced to reflect that danger. A “dead cat bounce” refers to a temporary rebound in stock prices after a significant fall, often because speculators buy shares to cover their positions. Like Burry, he warned of an “unprecedentedly dangerous mix” of hugely overpriced assets, commodity-price shocks, and a Federal Reserve intent on curbing inflation by cooling the economy. Jeremy Grantham, another doomsaying investor and market historian, also shrugged off the recent upturn in stocks as a bear market rally, in a new research note titled “Entering the Superbubble’s Final Act.” Burry suggested in May that the S&P 500 could drop as low as 1,900 points, or another 53%, over the next few years, based on how past crashes have played out.
Elevated inflation has spurred the Fed to hike its target interest rate from almost zero in March to nearly 5% today, and to signal further increases are coming. “This time is different,” Burry wrote, likely mocking commentators who see the latest market rally as sustainable. Burry also emphasized that after the Great Crash of 1929, the Dow Jones index rallied 10 times by more than 10%, rising by an average of 23% each time, before bottoming at a 89% decline. The S&P 500 index has rebounded strongly from the pandemic crash in the spring of 2020, rising from a low of 2,192 points to around 3,800 points today. However, it could halve in value to below 1,900 points over the next few years, Burry tweeted on May 3, 2022. In addition, he has $738.8m (£582m) in options against the Invesco QQQ Trust ETF – a fund on the Nasdaq comprising high-profile tech firms including Apple, Microsoft and Tesla.
2Trader who predicted 2008 crisis bets $1.6bn on 2023 market crash
Moreover, he’s cautioned that the Fed may balk at stepping in to shore up asset prices, given the risk of exacerbating inflation. Higher rates encourage saving instead of spending and investing, and make borrowing more expensive, which can relieve upward pressure on prices. Yet they also dampen demand, which can erode corporate profits, pull down asset prices, and temper economic growth, lifting the risk of a recession. The investor noted that 5.2 times Microsoft’s outstanding shares were traded between the software stock’s peak during the dot-com bubble and its bottom in 2002. That figure was 3.3 times during the financial crisis, but had only reached 0.5 times at the time of his tweet.
‘Big Short’ hedge fund pulls out of $1.6bn bets against US market
The implication is that investors shouldn’t get their hopes up about any rallies in the coming months, as they’re likely to be brief respites that won’t result in a market recovery. Fears of soaring prices, aggressive rate hikes, and a painful economic downturn sent the S&P 500 down 19% and the Nasdaq Composite 33% lower in 2022. However, investors have piled back into stocks this year, driving the benchmark index up 9% and its tech-heavy peer up 17% year to date. Next, he dumped all but one of his holdings in the second quarter, slashing his portfolio’s value from $165 million to about $3 million and stoking fears that a market crash was around the corner. A man who famously made a fortune by predicting the collapse of the US housing market in 2008 now appears to be suggesting that two major stock markets will tumble in value. An investor who was featured in the film The Big Short after he correctly bet on the housing market collapse in 2008 has now predicted that a Wall Street crash will take place by the end of this year.
Moreover, he has dismissed the rebounds in stocks this year as bear-market rallies or “dead cat bounces” — temporary reprieves along the power trend road to inevitable disaster. While Mr Burry, who founded Scion Asset Management, appears to have placed a large proportion of his assets at risk, it is not clear what his fund paid for the “put options”. Mr Burry’s bet on a market downturn amounts to more than 90% of his firm’s portfolio, CNN reports. He cautioned they might run short of money by the end of 2022, causing consumer spending to slump, corporate earnings to suffer, and economic growth to weaken.
He noted that after the dot-com bubble burst, roboforex review the Nasdaq rallied 16 times by more than 10% — gaining on average 23% each time — on its way to a 78% decline at its nadir. The Scion Asset Management chief’s stance seems to be that the market boom is over, stocks are headed downward, and any rallies will prove short-lived. Burry also predicted inventory gluts for retailers, layoffs for white-collar workers, higher long-term inflation, and a years-long recession.
The investor of “The Big Short” fame tweeted a chart Tuesday that showed the S&P’s roughly 40% plunge between February 2001 and October 2002. It also plotted the decline in the Federal Reserve’s benchmark interest rate from 6% to below 2% during that period. Burry also nodded to Elon Musk calling him a “broken clock” last year, after the Scion chief bet against Tesla stock, predicted it would collapse in value, and questioned Musk’s motives for selling his company’s shares. The Scion Asset Management chief’s grim prediction may be coming true, as the S&P 500 and Nasdaq indexes tumbled by 19% and 33% respectively in 2022. In tweets posted in May 2022 then subsequently deleted, Burry took credit for calling the sell-off, explained why he expects further declines, and cautioned against buying into relief rallies.
Inflation, recession, and the Fed
But over the third quarter of the year, the ETFs declined 3.2 per cent and 2.8 per cent, respectively. This indicates that Burry’s bets may well have paid off because second quarter 13F filings show the bets were in place at the end of that quarter. Michael Burry has hinted the surge in stocks this year reminds him of the dot-com bubble, and could end with a similarly devastating crash.
Notably, Burry emphasized in October that he’s bracing for a collapse in stocks that dwarfs the dot-com crash, as there’s so much money parked in index funds today. Novastar, another major subprime lender with a slew of internal issues, was also burnt badly when the bubble burst. The US stock market appears to be following the pattern of previous bubbles, leaving it poised for a monumental crash, Burry noted in a May 8 tweet. Michael Burry sounded the alarm on the “greatest speculative bubble of all time in all things” last summer, and cautioned investors buying into the hype that they were headed for for the “mother of all crashes.” Michael Burry, the hedge fund boss featured in The Big Short, in which he was played by Christian Bale, held negative options on both the S&P 500 and Nasdaq 100 at the end of the second quarter, securities fillings show.
Moreover, he suggested the coming downturn could rival the financial crisis in magnitude and devastation. Moreover, he cautioned that stubborn inflation might prevent the Federal Reserve from bailing out markets, and said observing the downturn felt like watching a plane crash. The Scion chief also laid out why stocks were bound to fall based on historical trends, called out “silliness” and unwarranted optimism in markets, and complained about people’s refusal to listen to him. Mr Burry became famous for his market movements in the mid-2000s, when he bet against the housing market during events that led to the worldwide recession.