Michael Burry Stock Market Prediction

Michael Burry Stock Market Prediction: Michael Burry was a well-known player in the financial world as far back as 2000, but the world outside of the finance industry didn’t get to know him until 2015. That year, Paramount Pictures released The Big Short – a comedy/drama that showed how Burry made millions by predicting and profiting from the subprime mortgage crisis that plagued the United States from 2007 to 2010. 

Few believed Burry when he bet against the housing market in 2005, but they are more inclined to listen now – and Burry has a lot to say when it comes to how the market will move over the next few years. Is Michael Burry predicting collapse in 2022? And if so, how can you protect your assets? 

Why Michael Burry Has Credibility

Michael Burry’s hedge fund, Scion Capital, was founded in 2000. At the time, Burry was considered a talented value investor, and he attracted the attention of big names like Joel Greenblatt and the managers of Vanguard Group. Clients were immediately interested – all the more so when they saw his first year’s results. 

When the S&P dropped by nearly 12 percent in 2001, Scion saw 55 percent returns. That year, Burry predicted the internet bubble, and he delivered profits to his clients by short-selling the most overvalued tech stocks. He repeated his success again and again, solidifying his reputation as a gifted investor. 

Unfortunately, that reputation wasn’t enough when it came to his views on the risk presented by subprime mortgages. In 2005, he made a bold prediction that the housing market would collapse. He gained very little traction in terms of influencing others to his way of thinking. 

Burry bet his own money and his clients’ money on the housing bubble bursting, and many were furious. They didn’t believe the drop would actually occur.

However, in 2007, he was proven right. His personal profits and those earned for his investors topped $800 million, forever cementing his credibility as an expert in market behavior. 

Is Michael Burry Predicting Collapse In 2022?

In mid-February 2021, Michael put his market predictions in blunt terms. He said, “The market is dancing on a knife’s edge,” because investors are taking on unsupported risk. They are making speculative trades with borrowed money, as evidenced by increases in the S&P 500 index that match margin debt levels. It’s simply not sustainable, and a crash is all but inevitable. 

Burry suggested that part of the issue is a general transfer of assets from actively managed funds to passive index funds. He called this “passive investing’s IQ drain.”

The danger is amplified by new trends in day trading. Inexperienced investors are jumping into the market and making trades based on advice from social media groups and so-called “meme stocks.” 

The most compelling example of this was GameStop, which went from less than $20 per share to $483, then down to about $50 per share in less than 30 days. It is worth noting that Burry generated a $270 million profit from the GameStop roller coaster. 

These same inexperienced traders are showing particular interest in call options, which can be profitable when carefully leveraged by sophisticated traders. Unfortunately, the new day traders attempting these strategies are deliberately taking high risk positions with what appears to be a lack of concern for potential consequences. Hashtags like #blowofftop and #cautiontothewind are common in the social media trading groups. 

The unsupported increase in stock prices means a correction is coming, sooner or later – and Burry suggests that it is likely within the next 12 months. It may start with significantly overvalued stocks like Elon Musks’ Tesla, which Burry has short sold. He refers to this stock in particular as #TeslaSouffle.

How Money Printing Is Creating Inflation

In addition to the concerns around overvalued stock bought on credit, Michael Burry has gone public with his predictions on inflation – and he isn’t alone in his alarm.

An injection of cash into the economy through proposed economic stimulus measures combined with pent-up demand for goods and services that have been unavailable during the COVID crisis could create the right conditions for sudden, rapid inflation.

Burry points to post-World War I Germany, which saw hyperinflation in 1923. Burry says that there was an eight year build-up before the 1923 collapse, and he sees parallels in events from 2010 – 2021.

Essentially, he suggests that the United States is following in Germany’s footsteps with its Modern Monetary Theory (MMT) based policies.

Trillions in economic stimulus funds and re-opening of shuttered businesses will cause increases in the cost of labor and the cost of goods sold, which can only end in a painful, unsustainable level of inflation. 

Michael Burry Stock Market Prediction

Based on his analysis, Michael Burry is predicting collapse in 2022 – but this time, he doesn’t intend to take the heat when no one listens.

Burry has shared his theory far and wide, and he has consistently added this remark: “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.” 

In fact, he went one step further by changing his social media handle to “Cassandra” – a prophetess who appears in Greek mythology. Cassandra’s curse was a lifetime of seeing the future and begging others to listen, but never being believed.  

How To Protect Yourself 

The key to protecting your portfolio from inflation is to focus on tangible assets rather than cash. In a hyperinflation scenario, money becomes essentially worthless, so assets with intrinsic value – or those unrelated to traditional currency – are more likely to retain their worth. 

Bitcoin could be important in a world where the US dollar loses value, because there is no connection between cryptocurrency and traditional currency. That separation has inspired a handful of companies to diversify, trading in some of their cash for Bitcoin as a hedge against inflation. 

Stocks tend to keep pace with inflation, assuming they aren’t otherwise significantly overvalued. Gold is also a popular choice as a hedge against inflation.

Some investors choose to add commodities or a commodity-focused ETF to their portfolios, as these tend to move with inflation as well. If you decide to go this route, the iShares S&P GSCI Commodity-Indexed Trust (GSG) is a popular choice. 

It may not be possible to fully protect your portfolio against the risk of inflation, but careful diversification that includes a mix of assets will ensure that you don’t lose too much buying power in a hyperinflation scenario such as Michael Burry’s predicted collapse in 2022. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.