You may have recently followed the events of GameStop when a couple of hedge funds went practically out of business because a community of young supporters and day traders nudged their thumbs at short sellers. You may have also read about how Credit Suisse (from Switzerland) and Nomura (from Japan) lost over $9B market value over the shortcomings of Archegos, a ‘family office’ investment house. But if Michael Burry is right, that is nothing compared to what is coming.
Who is Michael Burry and why should anyone care about what he says? He is the investor who predicted and bet against the housing bubble that led to the subprime crisis in 2008 and has been immortalized by the actor Christian Bale in the movie ‘Big Short’ about the events.
The other day, I got a WhatsApp message from a family member about Michael Burry deleting his Twitter account after having received a visit from the Securities & Exchange Commission (SEC). Dr Burry, as he wants to be called (he is a medical doctor), has been very harsh about the stock market. He has been using his Twitter account to issue warnings about some specific stocks, as well as the crazy evolutions of Bitcoins, SPACs, future of inflation and the broader stock market. Among his warnings has been that these assets have been "driven by speculative fervor to insane heights from which the fall will be dramatic and painful."
But why am I bringing this up? Well, for one I find it bizarre, and no-one has yet explained why the SEC visited him. After all, he is doing what countless investors and funds do and no-one visits them. Second, his warnings must be taken seriously because it looks like the world has gone mad and that greed has double trumped (and not TRUMPed) reason:
Central banks print money to cover expenditures and hope that inflation will not abound so that interest rates will be kept low - because if the interest rates increase, most countries, even the rich ones, will have extreme difficulty paying their debts’ service/interest fees - But low rates and excess cash is pushing investors and wealthy people, whose desire for wealth has no limits, to invest in stocks (and not bonds), exotic “gismos” such as SPAC s & cryptos, and …. Housing. Then housing prices skyrocket making them unaffordable for a large portion of the population. And …. The central banks are fine with this, because in most economies the increase in housing prices are not included in the inflation basket (neither are stock prices and crypto prices). So in effect, the economic policy has transferred inflation to housing, which is a fundamental human need and that does not show up in official inflation rates (the numbers that are fed to the people).
But how long before that trickles down to other goods, or drive a larger and larger portion of population to precarity in lodging? Or if you adjust this by increasing interest rates, you increase the debt servicing burden massively.
There is an expression in French (Fuite en avant) which means “escape forward” referring to the situation where you have a problem, and instead of solving it you just keep running forward to escape it. but most often you fall over the edge.
Paris, April 12, 2021
Zeejay