Michael Burry rose to fame after he predicted the 2008 U.S. housing crash and managed to net $100 million in personal profits, and another $700 million for his investors with a few lucrative, out-of-consensus bets.
Now, the Scion Asset Management chief is warning that economic forecasts for a “soft landing”—or even a “mild recession”—are overly optimistic.
“What strategy will pull us out of this real recession?” he wrote in a Tuesday tweet, which has since been deleted. “What forces could pull us so? There are none. So we are really looking at an extended multiyear recession.”
Burry has long argued that U.S. consumers are spending down their savings, inflation is here to stay, and corporate profits are set to take a hit, which means a recession is all but guaranteed.
More recently, he says that this recession could last much longer than most investment banks anticipate, because options for intervention to spur economic growth from the Federal Reserve and the Federal government are limited owing to rising inflation.
The hedge funder, whom actor Christian Bale portrayed in the 2015 film The Big Short, has been sounding the alarm about the potential for a devastating recession. And while some have criticized his consistently pessimistic outlooks—and spotty track record—he has made some prescient predictions lately.
Just before the Crypto Winter in June 2021, for example, Burry warned crypto investors that “the mother of all crashes” was coming. Since then, the crypto industry has watched its value plummet from around $3 trillion to roughly $850 billion, according to CoinMarketCap.
Burry also called the stock market the “greatest speculative bubble of all time in all things” in 2021, before the S&P 500 cratered 18% this year.
Still, Burry’s predictions aren’t always on point. In July, after the S&P 500 logged its worst first-half performance since 1970, the hedge funder warned that the index could fall to 2800 this year. But since then, it’s actually traded flat—with some volatility in between.
Burry has been putting his money where his mouth is when it comes to his bearish predictions, however.
In the second quarter, he slashed Scion Asset Management’s holdings to a single private prison stock, the GEO Group, exiting 11 other stocks, including Alphabet and Meta.
But in the third quarter, Burry added five small new positions, including shares in another private prison company called CoreCivic, the media conglomerate Qurate Retail, telecoms Charter Communications and Liberty Latin America, and rocket manufacturer Aerojet Rocketdyne Holdings, SEC filings show.
However, Burry tweeted after his stock purchases went public that “you have no idea how short I am.”
In his latest tweet, Burry also criticized other forecasters for not predicting a more severe recession. But Nouriel Roubini, professor emeritus at New York University’s Stern School of Business and CEO of Roubini Macro Associates, who has argued that the economy could be facing “a variant of another Great Depression,” was quick to respond.
“Some of us have been predicting a long and severe recession and made a detailed case for why we are headed towards a Great Stagflationary Debt Crisis,” he tweeted to Burry on Wednesday.
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I am a financial expert with a deep understanding of the dynamics of the global economy and financial markets. My expertise extends to analyzing the strategies of notable investors, such as Michael Burry, and interpreting their predictions in the context of economic trends. My knowledge is derived from a comprehensive study of financial markets, economic indicators, and the historical context of major financial events.
Michael Burry, renowned for his accurate prediction of the 2008 U.S. housing crash, has recently garnered attention for his warnings of an impending recession. Burry's track record includes successfully navigating the subprime mortgage crisis, which was depicted in the film "The Big Short." Despite occasional criticisms and skepticism about his predictions, he has demonstrated an ability to make prescient calls, as evidenced by his early warnings about the Crypto Winter in June 2021 and his characterization of the stock market as the "greatest speculative bubble of all time" in 2021.
Burry's current warning revolves around his belief that economic forecasts predicting a "soft landing" or a "mild recession" are overly optimistic. He argues that U.S. consumers are depleting their savings, inflation is persistent, and corporate profits are likely to suffer, leading to a prolonged recession. What sets this warning apart is Burry's assertion that the recession could be more extended than anticipated by most investment banks. He attributes this prolonged economic downturn to limited options for intervention by both the Federal Reserve and the Federal government, given the backdrop of rising inflation.
Notably, Burry has criticized other forecasters for not predicting a more severe recession and has engaged in bearish investment strategies to align with his outlook. His recent actions include reducing Scion Asset Management's holdings, exiting certain stocks, and adding new positions in specific sectors during the second and third quarters of the year.
Despite occasional inaccuracies in his predictions, such as the misjudgment of the S&P 500's performance in July, Burry remains a prominent figure in financial circles. His ability to foresee market trends, as demonstrated by the timely warnings about the crypto market and the stock market bubble, adds weight to his current cautionary stance.
In conclusion, Michael Burry's warning of an extended multiyear recession is grounded in his analysis of consumer behavior, inflationary pressures, and limited intervention options. Investors and analysts should carefully consider the implications of his insights, given his track record of prescient predictions in the financial markets.
