Michael Burry, the Big short man of the Subprimes and chairman of the American fund Scion Capital, famous for having founded his huge fortune by investing against the grain, has just announced again the worst. According to him, the money of small stock holders and cryptocurrencies is in danger, now, more than ever.
Since so far he has never been wrong, we take a look at his latest statements, and summarize everything for you. Follow the guide.
Michael Burry, who’s that guy ? 👤
Michael Burry, a medical doctor and neurology specialist, has become a phenomenon in the world of finance in just a few years. Now 50 years old, this very special character is famous for having anticipated the last major crises that hit the financial markets, such as the bursting of the Internet bubble in 2001 or the subprime crisis in 2008.
With Asperger's syndrome, his emotions and analytical skills are very different from those of most people. Thus, Michael was able to see what others did not, and he bet a billion dollars on the collapse of the American mortgage market.
More recently, in early 2021, Michael made news again by revealing a short position of over half a billion dollars on Tesla, whose carbon credit revenues he predicts will fall drastically. Only time will tell if this prediction proves to be true.
To keep in touch with his fans, Michael mainly uses the social network Twitter under the pseudonym Cassandra. In Greek mythology, Cassandra was given the gift of predicting the future by Apollo, but because she refused him, she was condemned to never be believed. From then on, no one would believe her, and neither would Michael.
Last February, he tried to warn his 190,000 fans of an impending crash. Michael was concerned about the unsustainable rise in stock prices, encouraged by passive portfolio management, media hype and speculation. But when faced with the lack of response from the markets, he deleted all his tweets.
"People say I didn't warn last time, but I did. Only nobody listened. So I warn this time, and again, no one listens. But I have proof that I would have warned."
After that, he provided no more financial information and simply closed his account.
But lately, after months of absence, the big short man has returned and recently started tweeting again, and even twice as much as before. Indeed, this time he warns the whole world of the imminence of not one, but two financial disasters: the collapse of the biggest bubble in history on the stock market and, with it, that of the current cryptocurrency market.
1. The bursting of the equity bubble. 💥
On June 15, 2021, he tweeted "People always ask me what's going on in the markets. Simple, it's the biggest speculative bubble of all time. By any measure."
Mickael Burry laments that despite his warnings last February, no one listened to him and prices continued to rise. He explains this phenomenon as follows:
« All the hype and speculation is just luring small investors before the mother of all crashes. »
In short, Michael is angry at these new investors who have arrived on the markets in large numbers and who are able to propel stocks to the top, without any link to economic realities.
According to him, they invest wildly, take too much risk and seek unrealistic returns. He denounces the stocks themselves, those securities that are only successful through rumors on the Net or media buzz. He also points the finger at the indebtedness of investors who borrow money and then buy securities with it or, worse, risk it on derivatives. Lastly, he takes a dim view of the arrival and influence of SPACs, companies created solely for the purpose of buying other companies and which are now worth nearly 100 billion dollars.
According to him, they are also partly responsible for the overvaluation of many tech companies, whose sector is increasingly shunned by large investment funds.
On June 4, 2021, the Dow Jones peaked at 3,4756 points, its all-time high. It has lost 4.3% since then. As for the S&P 500, it reached its highest level on June 14, before starting to fall, currently by 2.3%. In short, the pressure cooker is about to explode and two days later, Michael does it again.
2. Crypto-currency alerts. ⚠️
This time, it is the crypto assets that worry him, and in particular Bitcoin, which has just undergone a correction of almost 48% since mid-April. The other crypto assets have not resisted and have also deviated. This correction would essentially come from the too widespread use of leverage in crypto currency trading. Michael Burry writes on twitter:
"The problem with crypto, as with many things, is leverage. If you don't know how much leverage matters in crypto, then you don't know anything about crypto, no matter what you think."
To understand what he means, let's quickly review what leverage is. Under the name of leverage is actually a method of financing. It is the simplest way to increase the amount of capital to be invested. Most trading platforms allow for this leverage. They advance money and allow their clients to earn a lot of money when everything goes well. But it is also possible to lose your capital much faster. The problem is that the practice is very widespread and is used in an unconsidered way.
The effects of this are now being seen in the market's downfall, encouraged by other announcements, such as Tesla's abandonment of its plans to accept payments in bitcoins. According to initial estimates, in a few weeks, more than $10 billion has vanished from more than one million accounts. And according to Michael, it's not over yet.
According to the site Coinmarketcap, the capitalization of all crypto-currencies currently listed is 1162 billion euros, compared to 2031 billion euros on May 09. Michael recommends the utmost caution, and in particular not to use leverage, especially if you are one of the beginner crypto investors. He then completes his first tweet an hour later, in a very pessimistic way.
"Because crypto will lose billions and stocks will do the same in the tens of billions, #MainStreet losses will approach those of countries. History is repeating itself."
It's true that the latest warnings from Wall Street's cursed oracle have all proven accurate and once again, Michael is confident. So much so that he's still shorting tech stocks and resurfacing on Twitter.
And once again, he might be right. Could be, because nothing is ever certain in this world. But we have to admit that the total capitalization of crypto assets is already melting like snow in the sun and the main US stock indices are down significantly for the first time in weeks. It's hard not to feel the tide turning and the entire US economy now has its eyes on the FED, as a rise in US key rates could set the world on fire.
Last March, Jerome Powelł, Chairman of the Board of Governors of the U.S. Federal Reserve, reassured the markets by announcing that rates would remain fixed until the country had returned to a normal level of activity. In other words, until unemployment falls and inflation rises to 2%. And last week, the FED welcomed the performance of the U.S. economy and the progress made in managing the health crisis.
On this occasion, some announcements were made that will put a chill on the market: a first rate hike for 2023, maybe even as early as 2022, as well as a decrease in bond buybacks, the main source of financing for the US government. It is therefore with great caution that an investment in technology stocks and derivatives or crypto assets should be considered, without borrowing, without using leverage and only with money you do not need.
If you want to know more about the amazing personality of Michael Burry, go and watch the movie The Big Short by Adam McKay. Christian Bayle plays a larger-than-life Michael. The film explains perfectly the mechanisms of the 2007 crisis. A great way to improve your financial literacy.
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