Irrespective of one’s personal beliefs regarding outspoken hedge-fund manager Michael Burry, he cannot be blamed for garrulousness. On the night before the midweek session, the investor made famous for his depiction in the film The Big Short tweeted one word: “Sell.”
Typical of the aura that is Michael Burry, he did not respond to Bloomberg’s request for further clarification. Still, it’s not particularly difficult to partially ascertain his train of thought. As the outlet pointed out, the benchmark S&P 500 index ended January up 6.2%. This performance represents the best start to the year since 2019 when the Nasdaq 100 jumped nearly 11%.
Therefore, the assumption among some bearish market participants is that the rally extended too much, especially ahead of ongoing macroeconomic headwinds. Notably, the Michael Burry tweet hit the airwaves hours before the Federal Reserve announced its monetary policy guidance. Ahead of the disclosure, experts debated the ultimate trajectory of interest rates, which carries significant implications for the market.
As of the latest news, the central bank raised its benchmark interest rate by a quarter percentage point. This was in line with analysts’ expectations.
In addition, the cryptocurrency market — on which Michael Burry has weighed in — posted a relatively muted performance in the trailing 24 hours, per CoinMarketCap. Still, such circumstances may represent the calm before the storm.
The World According to Michael Burry
Fundamentally, the hedge fund manager appears concerned about fissures in the economic system related to demand viability. As well, he appears to perceive that the market at large may be overreacting to pockets of good news, effectively missing the forest for the trees.
Back in June last year, Michael Burry retweeted a CNN article that detailed the troubles of major retailers in the U.S. For lay observers, he introduced a fresh term: the bullwhip effect. In short, the bullwhip effect describes the consequences of inaccurate demand amplification at the retail level leading to unnecessary production at the manufacturing point.
Later, the famed investor popularized the search query “Michael Burry tweet” with another contribution to the financial lexicon: multiple compression. Basically, this term references a dynamic where increases in corporate earnings fail to correspond with rising share prices. To Burry’s point, investors are no longer willing to pay a premium for earnings growth. Moreover, they begin to lack conviction that companies will be able to ride out economic difficulties.
Nevertheless, investors not sharing the same thought process may have difficulty accepting the latest rumbling from Michael Burry. For instance, in 2021, Burry tweeted that “[p]eople always ask me what is going on in the markets. It is simple. Greatest speculative bubble of all time in all things. By two orders of magnitude.”
To be fair, the S&P 500 corrected sharply in 2022. However, Burry faces a tougher audience now, particularly with the Fed brushing aside today’s rate hike.
Why It Matters
Michael Burry became a brand of sorts when he correctly predicted the 2008 housing crash. At the time, people levered up excessively through infamous “ninja” loans or no income, no job (nor) assets. However, circumstances are different now, with the New York Times reporting that in the first quarter of last year, Americans became equity rich.
Nevertheless, no one should throw the baby out with the bathwater. Rising mass layoffs present a major concern for all markets for obvious reasons. As well, a yield curve inversion predicted every recession since the 1970s. Therefore, Michael Burry could still end up being proven correct (again).
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
