Michael Burry, the hedge fund manager who made hundreds of millions of dollars betting that the U.S. housing market would crash, has dumped his stock portfolio and bought more than 500,000 shares of The Geo Group, the world’s second-largest private prison operator.
Burry’s ability to predict and profit from his trades ahead of the 2008 financial crisis helped inspire the best-selling book and blockbuster movie, “The Big Short.” He now owns just one stock, according to filings released on Aug. 15. At current prices, Burry’s position in Geo Group is worth about $3.9 million, Reuters reported.
Based on his (frequently deleted) tweets, Burry is betting on a deep recession in which unemployment and crime will rise, according to Luke Lango, a senior investment analyst for investing and financial news site InvestorPlace.
Another part of the bet could be political, Lango wrote. Former U.S. President Donald Trump supported private prisons, and private prison spending boomed during his administration. GEO Group stock more than doubled in the first months of Trump’s presidency.
News of Burry’s stock purchase sent Geo Group share prices up 12 percent.
The stocks that Burry sold included $12.9 million worth of Facebook parent Meta, a $19.7 million stake in Cigna Corp, $23.1 million stake in Bristol-Myers Squibb, $19 million in Booking and $18 million in Alphabet.
“It appears Burry could be making a simultaneous bet on economic collapse, rising crime rates and a coming ‘Red Wave’ in this year’s midterm elections with his purchase of GEO stock,” Lango wrote.
Burry frequently deletes his tweets, Reuters reported. He suggested on Twitter that the 18-percent gain in the tech-heavy Nasdaq Composite Index since July 1 is likely to reverse.
“Can’t shake that silly pre-Enron, pre-9/11, pre-WorldCom feeling,” Burry wrote, referring to three events between February 2000 and September 2002 that contributed to a 75-percent decline in the Nasdaq.
Burry thinks stocks are doomed and he’s putting his money where his mouth is, Lango wrote. “He’s taken to Twitter numerous times to warn investors that the stock market crash is actually just getting started … This is perhaps the loudest warning shot yet for investors betting on a new bull market. Arguably the greatest bear market prognosticator of all time is 100% bearish on this market.”
Followers of Burry’s tweets were not that surprised, according to Lango. “He has warned for months that this stock market crash could get really ugly.”
Based on piecing together his tweets, Lango said Burry believes there will be disinflation in the short-term as inventory builds, but higher-than-usual inflation is here for the long term, powered by persistent commodity and labor shortages. And if inflation persists, stocks are doomed.
In addition, Burry believes poor U.S. government policies will exacerbate the negative economic impact of inflation, plunging the U.S. economy into a deep recession that will lead to a dramatic drop in corporate profits, yet to be priced into stocks. As corporate profits drop over the next 12 months, Burry thinks stocks will collapse.
Many companies such as JP Morgan have divested in private prisons and federal contracts.
A month after Trump became president, he rescinded a Barack Obama directive from Aug. 2016 to phase out federal use of private prisons. Share prices plunged 40 percent after the Obama directive. Stocks plunged again in 2021 when the Biden administration announced a similar measure to restrict the Justice Department’s use of for-profit prison.
Black people have been historically overrepresented in county jails and federal and state prisons, but the racial disparities in private prisons are even worse, according to UC Berkeley African-American studies Ph.D. student Christopher Petrella.
“The line connecting slavery and modern private prisons is straight and glaring,” wrote Hana M. Kiros, an opinion writer for Harvard University’s Harvard Crimson newspaper. Harvard University continues to invest in private prisons despite criticism.
Prison companies account for about 10 percent of federal and state prison beds, according to Moody’s Investors Service. But two-thirds of people held by U.S. Immigration and Customs Enforcement are in private detention centers, S&P Global Ratings estimated in 2018.
“I doubt (Burry) holds GEO Group because it is the best stock with the most favorable risk/reward,” wrote Cavenagh Research, an investment blogger for Seeking Alpha. “Arguably, something else is going on that is not transparent to investors who simply read the SEC F13 filing.”