Scion Asset Management founder Michael Burry, who rose to fame with his epic bet against the U.S. housing market before the Global Financial Crisis of 2008, has predicted a stock market crash. Will Burry be right this time?
For those of us who aren’t familiar with Burry, his bet against CDOs featured in the best-selling book The Big Short: Inside the Doomsday Machine and the film adaptation The Big Short. It was a brave trade as everybody thought that the U.S. housing market is infallible.
Michael Burry frequently deletes his tweets.
Burry frequently deletes his tweets and also banned his profile for new users in 2021. Providing the rationale, he tweeted that bots reply to big Twitter accounts for promotion. Burry has had a very pessimistic view of cryptocurrencies.
Michael Burry’s previous predictions have been mixed.
Burry’s predictions have had a mixed track record. He called for a U.S. stock market crash in 2021 but markets actually soared to a record high with the S&P 500 adding 27 percent for the year, which was among its best risk-adjusted returns. Burry’s short bet against Tesla also didn't turn out to be fruitful and Tesla stock continued to soar.
He predicted that ETFs would cause the next market crash, again something that hasn’t materialized. Burry revealed a short bet against Apple in the first quarter of 2022. Apple is the best-performing FAANG stock of 2022 and while it's in the red, it's outperforming the markets.
His prediction of cryptocurrencies being worthless, a view shared by many including Warren Buffett and Charlie Munger, has somewhat fructified and digital assets have plunged in 2022. Similarly, his bet against Cathie Wood’s ARK Innovation ETF played out well and it has slumped in 2022. He also correctly predicted inflation before most people. He was also long on GameStop during the 2021 meme stock rally.
Burry was very bullish on water but subsequently exited the position. Water is a scarce natural resource and in 2020, CME Group launched water futures linked to the California spot water market.
Michael Burry has made another stock market crash prediction.
In 2022, Burry made several stock market predictions. In May, he tweeted that stock markets are like watching a plane crashing, similar to 2008. On June 30, he tweeted that the stock market crash is halfway.
Burry said that the valuation multiples have contracted and compressed earnings would follow. He also said that the multi-decade high inflation changes the landscape for investors. Amid high inflation, the U.S. Fed has raised rates by 225 points so far in 2022 and the stage is set for another 75-basis point hike in September.
U.S. stocks rebounded in July and had their best month since 2020. However, many including Mike Wilson of Morgan Stanley believe that the rally is a trap and stocks will eventually head lower even if there isn't a recession in the U.S.
Will the U.S. stock markets crash in 2022?
Not all analysts are on the same page when it comes to a possible stock market crash in 2022. JPMorgan Chase has predicted that the S&P 500 will hit a record high in 2022.
While rising inflation is a concern for markets, the fall in the 10-year Treasury bond shows that markets expect inflation to moderate and are pricing a reversal in the Fed’s tightening cycle sooner than later. The U.S. yield curve, which is among the best recession indicators, is also inverted, and if anything the gap between the 2-year and 10-year Treasury bonds has widened.
There are visible signs of a slowdown in the U.S. economy and even though it isn't officially a recession yet, the slowdown is palpable. Markets also have tepid expectations from companies and have sent stocks higher even on missed earnings. A lot of negatives are already priced in the stocks and we have seen multiple compressions, as Burry also pointed out.
The macroeconomic picture continues to worsen and the U.S. job and housing market should see pressure in the coming months. While the job market has been exceptionally strong so far, multiple companies are laying off employees amid slowing growth. Layoffs tend to have a domino effect and job losses could soon stretch to other sectors of the economy.
If the economy continues to contract, we could see a downwards revision in earnings estimates, which Burry also predicted. Amid a slowing economy and rising rates, U.S. stock would start to appear frothy and would be ripe for a crash.