Michael Burry screenshot from YouTube video,Casgain's Academy, https://www.youtube.com/watch?v=W9KTUDXzx5
Michael Burry, the short seller whose bearish predictions and ability to profit from them helped inspire the bestselling book and blockbuster movie “The Big Short,” is betting against Wall Street to the tune of $1.6 billion.
In his latest prediction, Burry is betting the stock market will crash. According to filings released Monday with the Security Exchange Commission, Burry is using more than 90 percent of his portfolio to bet on a market downturn.
Burry bought $866 million in put options — the right to sell an asset at a set price — against a fund that tracks the S&P 500. He also bought $739 million in put options against a fund that tracks the Nasdaq 100.
Put options get more valuable when the underlying asset price drops. These bets were particularly huge in Burry’s portfolio as the rest of his holdings were all under $11 million, CNBC reported.
Burry seems to be wavering between bullish and bearish on his stock picks this year, CNN reported. In January, he tweeted “Sell” to his 1.4 million followers. By the end of March, he backtracked, tweeting, “I was wrong to say sell.”
The 2015 movie “The Big Short” dramatized short selling in the weeks leading up to the collapse of Lehman Brothers and the government’s decision to bail out the largest U.S. banks and companies. It shone a light on the subprime mortgage crisis of 2007-2008 and on Burry, who predicted and profited from it.
The manager of the hedge fund Scion Capital, Burry suspected in 2005 that the booming U.S. housing market was an asset bubble inflated by high-risk loans. He created a financial instrument called a credit default swap which allowed him to short the housing market by betting that housing prices would drop.
The Nasdaq 100 and the S&P 500 have both had a good year so far. The Nasdaq is up about 40 percent year to date, thanks in part to gains in Nvidia, Meta, and Amazon. The S&P 500 is up 17.4 percent.
However, the momentum has stalled recently. The S&P 500 has been off the last two weeks as investors debate whether the Federal Reserve is done raising rates and the U.S. can avoid a recession.
Burry is not alone in predicting a market correction, Fortune reported.
Morgan Stanley chief U.S. equity strategist Mike Wilson, who ranked No. 1 in the 2022 Institutional Investor survey after correctly predicting a selloff in stocks, has been warning that shares are overpriced.
Wilson at one point admitted his outlook had been too bearish, but said last week he stands by his boom-bust call, Fortune reported.
“Think about it this way: They’re doing 8% budget deficit spending when you have 3.5% unemployment—that’s really unprecedented,” he told Bloomberg. “So, what’s going to happen if we do have a slowdown next year? [That’s why] I just think this boom-bust thesis is so correct.”
In addition to the put contracts, Burry bought shares in travel (Expedia and MGM Resorts) and in health care (Cigna and CVS Health.)
Burry has had some hits when gazing into crystal balls, but he is not immune to misses, Finbold News reported. In 2015, Burry forecasted an impending stock market crash within months. The S&P 500 rose by 11 percent over the next year. In May 2017, Burry predicted a global financial meltdown. Instead, the SPX rallied by 19 percent over the next year. And in September 2022, Burry predicted the bottom had not been reached in the stock market. The market saw a 21 percent upswing over the next 11 months.
