No one can accuse the famed investor Michael Burry of inconsistency.
The man immortalized by Michael Lewis’s book-turned-into-movie “The Big Short” has been bearish on stocks and other risk assets for months.
On Sept. 6-7, he took to Twitter to again warn of trouble.
“No, we have not hit bottom yet,” he wrote in one tweet. “Watch for failures, then look for the bottom. 2 SPAC ETFs failing is not near enough.”
The S&P 500 has dropped 17% year to date but rallied in the two months through Aug. 16. Exactly what he means by “failures” is unclear.” But it could be anything from bankruptcies by young and/or indebted companies to cryptocurrency meltdowns.
As for the special-purpose-acquisition-company exchange-traded-fund failures, the Defiance Next Gen SPAC Derived ETF and the Morgan Creek – Exos SPAC Originated ETF closed in August. The SPAC market turned into a speculative bubble that has now burst.
Tweet #2
In another tweet, Burry offered a laundry list of negatives for financial markets.
“Crypto crash. Check
Meme crash. Check.
SPAC crash. Check.
Inflation. Check.
2000. Check
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2008. Check
2022. Check.”
In the crypto crash, bitcoin has plunged 61% year to date, recently trading at $18,874, the lowest since December 2020.
Meme stocks have hit the skids, too. One that’s in trouble is home-goods retailer Bed Bath and Beyond (BBBY) , which has lost 67% since Aug. 17.
Inflation is raging, with consumer prices ascending 8.5% in the 12 months through July.
The year 2000 saw stocks fall into a bear market, as dot.com companies crashed. Meanwhile 2008 was the year of the worst financial crisis since the 1930s.
And apparently Burry doesn’t think 2022 will be so hot either.
Others Agree
He’s not the only one who’s negative on stocks. Goldman Sachs strategists are part of the club too, though their language is less incendiary than Burry’s.
“Taking the experience of the bear markets since the 1980s, including the collapse of the technology bubble in 2000-2002 and the Great Financial Crisis in 2008, we see a repeated pattern of rebounds before the market reaches a trough,” they wrote in a commentary.
“In this context, the recent rally since June 22 is, in our view, a bear market rally. Its duration and magnitude were not unusual relative to the experience of previous decades.”
So where does that leave stocks going forward? “We expect further weakness and bumpy markets before a decisive trough is established,” the strategists said.
Given the Fed’s determination to keep increasing interest rates, Burry and Goldman may well be right that stocks will fall further.
Activity in the interest-rate futures market shows traders see an 81% probability of at least another 150 basis points (1.5 percentage points) of tightening this year. The Fed has done 225 basis points already since March.