Call him a Cassandra: Financier Michael Burry’s predictions tend to come true. His latest is worrisome.
Michael Burry rose to fame after the 2015 film “The Big Short” depicted his bet on the subprime-mortgage meltdown, which sparked the 2008 financial crisis.
The financier has since become a market statesman. He mainly plays the role of Cassandra. The name of his profile on the microblogging website Twitter is “Cassandra B.C.” He’s the bearer of bad news. And he’s been delivering it for the past few months.
The investor, who recently liquidated his entire portfolio of U.S stocks save one, says the worst for the economy is yet to come as Federal Reserve Chairman Jerome Powell reiterated on Aug. 26 that the central bank would continue to raise interest rates aggressively to fight inflation.
This monetary tightening will lead to a hard landing for the economy — in other words, a recession, some experts say.
Burry didn’t wait to start pointing out potential red flags for the economy, like a household-debt crisis, that pose a serious danger.
Burry Indicates a Crash Is Coming
“Net consumer-credit balances are rising at record rates as consumers choose violence rather than cut back on spending in the face of inflation,” the legendary investor posted on Twitter on Aug. 12.
He included a graph from Bloomberg showing that U.S. consumer borrowing increased by $40.2 billion in June from the prior month. This was the second-biggest increase ever, according to data from the Federal Reserve.
“Remember the savings glut problem? No more. Covid helicopter cash taught people to spend again, and it’s addictive. Winter coming,” Burry added.
“Winter coming” seems to refer to the HBO series “Game of Thrones.” Characters used the phrase as a warning.
Nearly three weeks later, the financier did it again with a very gloomy prediction for the markets.
Indeed, he seems to say that a stock market collapse is a matter of when, not whether.
“And yet I keep getting asked ‘wen crash?'” Burry tweeted on Aug. 31, with a Bloomberg chart showing the movements of the S&P 500 since 2017.
On the graph he highlighted the fact that the stock market benchmark has fallen 18% since its high in December.
Burry Has Already Been Right This Year
Burry seems to feel that a stock crash is shortly going to happen. In May, the investor predicted that the S&P 500 could fall to 1,862 points over the following few years based on the crashes of past years. At last check the index was around 3,908; from there his call would be a drop of 52%.
“Re: paradigm shifts/speculative peaks, the SP500 bottomed 13% lower than 2002’s bottom in 2009, 17% lower than 1998’s [Long Term Capital Management] crisis low in 2002, and 10% lower than 1970’s low in 1975. 15% lower than the covid low is SPX 1,862 ~Shiller PE of 16, nominal PE of 9. In historic range,” the Scion Asset Management chief executive posted on Twitter on May 3.
The cause of his pessimism is that the “greatest speculative bubble of all time in all things” has been created since summer 2021. That’s particularly because small investors went heavily into the meme stocks and cryptocurrencies, portending the “mother of all crashes.”
The financier has been right so far: The cryptocurrency market has lost more than $2 trillion since it peaked last November, according to data firm CoinGecko. Bitcoin, the largest digital currency by market value, has lost more than 71% of its value since its November record. The S&P 500 and Nasdaq indexes, by contrast, have lost 18% and 25.4% respectively since January.
Burry’s tweet drew a lot of comments on social media. Some users pointed out that the year had been very bad for the stock market, while others were convinced that a crash was imminent.
“There is no reason for a market crash that hasn’t been priced in. This has already been the worst year for the market ever. Unless there is some catalyst market crash event, he is just staying what every TA guru is saying by simply copying the 2008 chart,” commented one Twitter user.
“It’s here lol. Started in January,” posted another user.
“Imminent,” said one user.