Michael Burry, Famous for Predicting 2008 Crisis, Places Bearish Bet on Market

Renowned investor Michael Burry, famous for his accurate prediction of the 2008 housing crash, is once again making headlines with his bearish outlook on the market. 

Recent securities filings have revealed that Burry’s company, Scion Asset Management, has purchased significant put options against the S&P 500 and the Nasdaq 100 indexes. The put options, valued at a staggering USD 739 million against the Invesco QQQ Trust ETF and USD 886 million against the S&P 500, suggest a defensive and pessimistic stance on the market’s future trajectory. 

However, it’s important to note that the exact amount Burry’s company paid for these options remains undisclosed, leaving room for the possibility that the figures mentioned in the filings might not accurately reflect the true extent of the investment. This could be part of a broader strategy with longer-term goals, rather than an outright bet against the indexes. 

Despite Burry’s bearish position, both the Nasdaq 100 and the S&P 500 have performed well this year. The Nasdaq has surged approximately 40% year-to-date, bolstered by solid performances from tech giants like Nvidia, Meta, and Amazon. Similarly, the S&P 500 has gained 17.4%, showcasing the market’s resilience in the face of potential concerns. 

Burry is not the only market observer signalling a possible correction. Morgan Stanley’s Mike Wilson has consistently warned of overpriced shares, referring to the market’s current state as the “death zone.” Wilson, who accurately predicted last year’s stock selloff, maintains his bearish perspective and attributes it to unprecedented budget deficit spending in a low unemployment environment.  Bill Gross, the “Bond King,” also shares this viewpoint, cautioning that an economy cannot thrive when low-risk investments yield more than high-risk ones. 

Interestingly, Burry’s recent portfolio moves also reflect a cautious approach. Furthermore, he has exited investments in China, a nation grappling with a property crisis. Although Burry had initially increased exposure to Chinese stocks in May, recent filings reveal that he has significantly reduced his investments in the country. 

This decision aligns with worries about the possibility that problems in China’s economy might spread, like a contagious illness. This concern comes from the difficulties faced by big companies in the real estate industry, such as Country Garden, which had trouble making payments on their loans. 

In addition to China, Scion Asset Management also offloaded shares of First Republic Bank, owned by JPMorgan, though the timing in relation to the bank’s collapse and takeover remains undisclosed. 

As market uncertainty persists and investors like Burry take defensive positions, the question of an impending correction becomes more relevant. While the Nasdaq 100 and S&P 500 continue to post gains, the warnings from seasoned experts like Burry, Wilson, and Gross suggest that potential economic headwinds should not be underestimated. 

The intricate interplay of fiscal stimuli, inflation, and market dynamics will likely dictate the market’s trajectory in the months ahead, leaving investors closely monitoring developments for any signs of a downturn. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet, and is subject to changes. Please consult an expert before making related decisions.