After taking almost a three-month break away from social media, the respected American hedge fund manager and investor Michael Burry has sent cautioning message about the burst of the greatest stock market bubble that could ever happen.
Burry is remarkable for his billion-dollar gamble against the United States housing bubble in the 2000. The story of his massive gamble even came in the form of a book entitled “The Big Shot” and a movie wherein his character was played by the American actor Christian Bale.
The famous money manager belongs to the few managers who observed the canaries in the coal mine of the doomed to fail US housing market in 2006-2007. He lost millions of his money and even of his investors. Yet, he managed to make billions when the housing sector falls down and trigger a collapse in the global financial crisis.
Burry foresee this event years before it actually took place. He started betting in the housing market in 2005, buying $60 million of credit-default swaps from Deutsche Bank. He was ready to pull the trigger, yet he needs another three years for the pay-off.
Burry figured out the possible bubble in the market because he was a good researcher. He keeps on digging for information. In the movie The Big Shot, there was a scene where he was reading through the thousands of individual mortgages in each mortgage bond, and that actually happened for Michael Burry.
The reason why you should follow a wise investor like Burry is not that he profited heavily during a financial crisis but because he isn’t listening to speculations in the news. Instead, he reads through the company’s SEC filings and digs essential information to make a reliable decision based on data.
Burry randomly tweets about potential inflation in the United States, comparing the U.S. now to Germany back in the early 1920s, where they went through hyperinflation. He was tweeting countless times every day regarding this, but no one seems to listen.
Michael Burry tweeted, “People say I didn’t warn last time. I did, but no one listened. So, I warn this time. Still, no one listens. But I will have proof, I warned.” After posting this, Burry deleted all of his tweets, leaving nothing but a review of a local restaurant.
In early April 2021, Burry deactivated his Twitter account after warning the investors of a possible sink in the value of stocks like Gamestop, Robinhood, and Tesla. Burry also gave a warning regarding the overvaluation of SPACs and cryptocurrencies, saying that it probably won’t end up well.
He supposed that investors are shouldering too much risk and are becoming to get too greedy in an attempt to get a hold of unrealistic high returns. Earlier in the years, he observed that the market is currently “dancing on a knife’s edge,” and sooner or later, another financial crisis would hit.
Now, the famed investor returns to Twitter, ringing the bells for another disaster that is sure to come.
Burry created a new account on the microblogging website under the username Cassandra. The name “Cassandra” comes from Greek mythology— a priestess who was cursed with the power to foresee the future, yet not to be believed by people.
On June 15, Burry tweeted, “People always asked me what’s going on in the market. It is simple. Greatest speculative bubble of All Times in All Things. By two orders of magnitude #FlyingPigs320.”
In this kind of economic environment with zero interest rates, money is more accessible than ever before. However, a borrowed money is still a borrowed money, and you need to give it back. What you need to do with the borrowed money is to make it into a bigger amount of money in order for you to profit.
Investing revolves around rewards and risks. During the normal market condition, investors get money from investments that flow on risk-free bonds and blue-chip stocks that only have minimal risks and even no risk on treasury bonds.
However, because money is so easy to access, the market is flooded, bonds aren’t giving a return anymore, and blue-chip stocks are overvalued. Money flows in other areas, while investors are looking for good returns. They look for risky stocks and buy.
There are a lot of people right now who invest in SPACs where money is invested in huge quantities in shell companies before they acquire a business is a pretty risky gamble— you don’t even have the slightest idea of what you are buying.
It is hard to find a company right now that isn’t overvalued, but because the interest rate is very low and money is easy to access, people just keep on going to find a new way to profit.
People also jump into the world of cryptocurrencies, an asset class that clashes with the institution’s interest and don’t produce real money at all.
Burry has taken a distinct swing in the cryptocurrency bubble, saying, “All hype/speculation is doing in is drawing in retail before the mother of all crashes. #FOMO parabolas don’t resolve sideways; When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet loses will approach the size of countries. History ain’t changed.”
Burry stated in one of his tweets as well that no matter how much you think you know about cryptocurrencies, if you don’t know much about the “leverage” in cryptocurrencies, then you don’t know anything about cryptos. There’s nothing wrong with investing in cryptocurrencies, but you need to prepare yourself and be comfortable with losing your money.
This is what is happening in the entire market right now, which lead Burry to his great speculation across the markets.
The most significant sell-off in the stock market history, which was seen back in March 2020, has been followed by the wild rebound in the global market. Investors backed by the record liquidity from banks have dived into different asset classes.
The statement of Burry that speculation is widespread in “all things” gives a clue at the crazy joyride seen by asset classes from sneakers to lumbers to traditional asset classes like bonds, equities, and certain commodities.
That which market observers have called the “everything bubble” has been driven by a massive influx of investors across the globe—a lot of people a making a so-called “investment” fueled by social-media trends.
There’s a massive record of dematerialized accounts opened in India in the recent 14 months as citizens who can’t go out of their homes dived into the stock market with their savings through a mobile trading application.
In all of the asset classes right now, most people think that they are genius because everything they bought has gone up. However, they don’t realize that the reason why what they bought has gone up is that “borrowed money” is just being pumped into that market. Consider what would happen if the borrowed money had to be taken out to pay tomorrow.
Although Burry’s warnings have always been discounted, only time will tell if Burry’s warning was accurate. Time will tell if investors will get slaughtered like pigs, just like what the ancient Wall Street saying goes, “Bulls make money, bears make money, but pigs get slaughtered.”
