Michael Burry I don’t know if you guys have watched the big-short or not, but he was the one who made a tonne of money by betting that the housing market would collapse in 2008.
Fast forward 13 or so years and he is sending another warning our way for us investors. He thinks that index investing, stock hype groups and free money is causing the stock market to soar in terms of prices, and he warns that this may not be sustainable. Here’s what he said…
“Speculative stock #bubbles ultimately see the gamblers take on too much debt” “The market is dancing on a knife’s edge,”. “People say I didn’t warn last time, I did, but no one listened. So I warn this time. And still, no one listens. But I will have proof I warned.”
So these are big words from someone who has a proven history of predicting correctly a market crash. Obviously that’s what he did back in 08.
He even went of further to make his twitter display Cassandra. This is a reference to the priestess who in Greek mythology was cursed to share true prophecies, but no one ever believed her.
Burry in some way is saying he is the financial version of this priestess, he’s freely giving out warnings on his twitter account, but not too many people are paying attention. They’re just enjoying the short-term returns that they’ve had, but let’s see who wins in the long-term. So I want to dig a bit further into some of the things that he’s saying and what we need to watch out for as investors…
First of all we’ve got to talk about all of these hype groups that we’ve seen on reddit, on YouTube and across the internet.These hype groups they promote certain stocks, generally high growth, risky ones, and a bunch of short-term money gets plowed into them.
For example the recent saga that we’ve seen on wall street bets, with Gamestop, with Amc, and all the other ones. We saw these stocks get out of control in terms of price, and people weren’t afraid to throw their stimulus checks into them.
Were they researching the fundamentals of these stocks? Most of course no. Did they understand the risk with these stocks? most of course didn’t, they were trying to make short-term quick money.
Michael Burry who actually invested in Gamestop, when it was cheap, was not happy with all of this so-called uneducated money going into Gamestop. He said “If I put $GME on your radar, and you did well, I’m genuinely happy for you,”. “However, what is going on now – there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.
And one of the reasons for this, is just because there’s so much free money floating around. We’ve seen the new $1.9 billion in stimulus checks come through. We’ve seen the fed keeping interest rates to pretty much all-time lows. This free money a lot of it is entering the stock market, & a lot of it is entering these so called meme stocks. Michael Burry clearly doesn’t think this is natural or sustainable and I tend to agree with him on this point.
The next thing that Burry talks about that is inflating stock prices, is all of this passive investing. As he said “Passive investing’s IQ drain, and #stonksgroup hype, add to the danger,”
He said a while ago, that “index fund inflows are now distorting prices for stocks and bonds in much the same way that CDO purchases did for subprime mortgages more than a decade ago. The flows will reverse at some point, and “it will be ugly” when they do.
Burry mentioned that “Central banks and Basel III have more or less removed price discovery from the credit markets, meaning risk does not have an accurate pricing mechanism in interest rates anymore. And now passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies — these do not require the security-level analysis that is required for true price discovery.
DISCLAIMER: It’s important to note that I am not a financial adviser and you should do your own research when picking stocks to invest in. This video was made for educational and entertainment purposes only. Consult your financial adviser. * Some of the links on this webpage are affiliate links. This means at no additional cost to you, we earn a commission if you click through and make a purchase and/or subscribe. This has no impact on my opinions, facts or style of video.