'Big Short' investor Michael Burry expects months of pain for markets and the economy - and cautions the Fed against cutting rates too hastily




Dr. Michael Burry
Dr. Michael Burry  
  • Michael Burry is bracing for a tough few months for US markets and the economy.

  • The "Big Short" investor cautioned the Fed against cutting rates prematurely if inflation cools.

  • Burry bemoaned the "silliness" in markets after two newly listed stocks skyrocketed in value.

Michael Burry expects bleak days ahead for markets and the economy, fears the Federal Reserve might reverse course and cut interest rates too hastily, and sees parallels between the dot-com bubble and recent eye-watering gains for newly listed stocks.

The investor of "The Big Short" fame has broadcasted his concerns in since-deleted tweets over the past couple of weeks. Here's a roundup of what he's worried about:

Winter is coming

"Someone was going on about Christmas in July...hope you enjoyed it," he tweeted on July 30.

The Scion Asset Management boss was referring to his previous prediction that a "disinflationary overstock consumer recession" would take hold by December, making this summer a much better time to celebrate.

Burry's tweet suggests he expects the rebound in stocks, cryptocurrencies, and other assets last month to prove short-lived.

He was likely nodding to Walmart's profit warning on July 25 as well, which confirmed his fears that bloated retail inventories, and inflation-squeezed consumers curbing their discretionary spending, would lead to companies cutting prices and reporting lower earnings.

Burry has previously observed that US households are facing sharp increases in food, fuel, and housing costs, putting them on track to burn through virtually all of their savings by Christmas.

He has pointed to Americans stashing less cash, tapping their savings accounts, and taking on more credit-card debt as evidence of their current hardship.

Calling out the Fed

The Federal Reserve should think twice about rapidly slashing interest rates if inflation cools, Burry cautioned in a July 31 tweet.

The investor noted the US central bank trimmed rates to 7.75% in December 1974. He described the move as a "killer mistake" as it temporarily drove stocks higher, but created a "lasting top" they wouldn't surpass until years later.

Burry has previously slammed the Fed for being ignorant of financial history, addicted to stimulus, and losing all of its credibility with investors.

He has also claimed the bank is cutting rates and shrinking its balance sheet not to fight inflation, but because it's "reloading its monetary bazooka" so it can save the day when consumer spending dries up and stocks tumble.

The fun won't last

Burry, who has repeatedly sounded the alarm on market mania and mindless speculation during the pandemic, warned those trends are back in a trio of tweets this month.

After AMTD Digital shares skyrocketed 14,000% within three weeks of the company's US market debut, Burry tweeted a link to a song by DevilDriver, a heavy-metal band, titled "End of the Line."

"The silliness is back," Burry tweeted on August 4, noting that euphoria is yet to disappear from the markets as it did during previous downturns. The irrational exuberance reminds him of the dot-com bubble before Enron and WorldCom collapsed and the 9/11 attacks shook the nation, he added.

Burry is best known for predicting and profiting from the mid-2000s US housing crash, investing in GameStop before the meme-stock boom, and betting against Elon Musk's Tesla and Cathie Wood's Ark Invest last year. He underlined the ridiculousness of investors' behavior today in an August 5 tweet.

"Gamblers gamble more the more they lose," he said, pointing to Magic Empire Global shares soaring more than 2,300% after their listing last week. "#Silliness."

Read more: A Michael Burry expert breaks down what makes the 'Big Short' investor special. He also revisits Burry's iconic bet against the housing bubble, and his GameStop, Tesla, and Ark wagers.

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