Michael Burry is a historical figure in investing. Many retail investors monitor his every word and post on social media in hopes of finding clues to a sound investment strategy.
His stock portfolio is scrutinized to see which companies have his confidence and which don’t. Burry, who manages the hedge fund Scion Asset Management, targets a number of companies that don’t and has shorted their shares, betting that their share prices will fall in the near term.
In times of great uncertainty, such as now, Burry’s messages are especially awaited. Investors are wondering if a hard landing — a recession — is on the horizon or if the Federal Reserve can deliver a soft economic landing.
Investors have shown a kind of optimism in recent weeks. They seem convinced that inflation, one of the big problems in 2022, is abating.
The renewed optimism in the markets translated this year into a 4.6% increase in the S&P 500 index to 4,016.95 points on January 24.
Easing in prices for goods and services should encourage central banks to moderate their aggressive rate hikes, many experts say. Such a monetary policy bend, they argue, could prevent a hard landing in the economy.
Except that investors in that optimism seem to be ignoring some warnings, such as the massive job cuts in the technology sector, which cut nearly 100,000 jobs last year. Tech companies have already cut nearly 58,000 jobs this year, 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 seems like a pessimistic parallel
Burry does not share this optimism. He even seems to suggest that it is a mirage, with a very difficult time ahead for the markets.
The investor, who usually expresses himself in cryptic messages, tweeted on Jan. 23 a chart of the S&P 500 covering the period from September 2000 to early 2003, essentially the dot-com 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 a continuous decline from a September 1, 2000, high of 1,530.09.
Between September 2001 and April 2002, the S&P 500 rose twice to approximately 1,178 points and 1,176 points. But then followed four months of decline to a low of 771 points. It then recovered to 966 points before plummeting again.
Burry accompanies his image with a single word: “Maybe.”
The investor said nothing else — but he seems to be drawing a parallel to the current period. He later removed the post, reviving a routine. He had stopped deleting posts when Elon Musk took over Twitter on Oct. 27.
Burry had suggested that a recession was imminent
Burry’s warning isn’t a big surprise, because at the beginning of the year, the investor predicted that the US economy would slide into recession this year, however you define the word ‘recession’.
“Inflation spiked,” Burry wrote on Twitter on Jan. 1. “But it’s not the last peak of this cycle. We’ll probably see [consumer price index] lower, possibly negative in 2H 2023, and the US in recession by any definition.”
Then he describes a vicious circle. The Federal Reserve, which has raised rates to levels not seen since the 2008 financial crisis, will reverse and cut rates as the federal government announces a stimulus package to help households strangled by the deteriorating economy.
All this will end with a resurgence of inflation, a circumstance similar to what happened during the covid-19 pandemic.
In short, we will see a rehearsal of what happened after March 2020.
“The Fed will cut and the government will stimulate. And we will have another inflation spike. It’s not hard,” Burry wrote.
The 2008 financial crisis, one of the greatest financial debacles in history, made Burry a legend. It made him an example to follow despite the standard practices of the financial world.
The 2015 movie “The Big Short” describes how the investor, who had no specific expertise in finance and real estate, came to understand that the industry had become a sandcastle. Financiers and bankers had created exotic products based on mortgages granted to financially vulnerable households and borrowers with poor credit ratings.
He decided to bet that the subprime mortgage market would collapse – hence the name “Big Short.” History has proved him right. The move turned Burry into something of a Wall Street oracle.
He embraced this role judging by his Twitter handle which is Cassandra BC. For traders and risk takers, he is a kind of party spoiler.
In recent months, Burry had warned that the economic situation would deteriorate seriously, that mass redundancies of white-collar workers were imminent; and that the stock market would experience a moment of truth after two years of boom during the pandemic.
All of these warnings came true in 2022.
