Renowned for his acumen and notorious for his eccentric mannerisms, legendary investor Michael Burry appears to have doubled down on his narrative regarding a stock market crash. At the end of last month, the hedge fund manager made famous in The Big Short issued a cryptic tweet: “Sell.” In typical Burry fashion, he quickly deleted the one-word post.
Now, Michael Burry is at it again, this time broadcasting an apparently sarcastic message on Twitter: “This time is different.” On the post stands a chart juxtaposing the effective federal funds rate and the S&P 500 in 2001 and 2002.
As TheStreet’s Luc Olinga stated, the hedge fund manager appears to connect cuts in the federal funds rate leading to a stock market crash. This assessment clashes with the current consensus that rate cuts should spark a market lift.
Unsurprisingly, the return of Michael Burry to once again reiterate the thesis of a stock market crash attracted another titan in the social media ecosystem, Tesla (NASDAQ:TSLA) CEO Elon Musk. In a similarly sarcastically toned post, Musk responded that Burry “[c]racks me up every time.” To top it off, the EV evangelist ended the message with a laughing emoji.
On the surface level, then, Burry appears to double down on his forecast of a stock market crash. Last year, he warned about the bullwhip effect negatively affecting major retailers. A few days later from that message, Burry sounded the alarm bells regarding multiple compression risks.
On the other hand, Musk essentially characterizes Burry as a worrywart. So, who is right about a stock market crash? It’s a nuanced discussion.
Michael Burry and Elon Musk Wag the Dog of the Stock Market Crash
In the 1997 political satire film Wag the Dog, a public relations expert and a Hollywood producer fabricate a war in a far-off country to detract voters from a presidential scandal. In many ways, Michael Burry and Elon Musk equally leverage public sentiment for their own agendas.
While they would like investors to believe in compartmentalized deductions — Musk the bull, Burry the bear — the reality is much more nuanced. At the core, both are opportunists. Therefore, if a stock market crash materializes, both individuals would likely have positioned themselves to benefit.
On one hand, most investors should understand where Burry stands on the probabilities of a stock market crash. In 2021, he aroused the blogosphere with a warning about “the mother of all crashes.” Since then, the hedge fund manager issued a number of tweets — some more cogent than others — reaffirming the view.
On the other hand, Elon Musk seemingly takes a more optimistic view, particularly about the technology sector and renegade cryptocurrencies. However, Musk doesn’t mess around. When he feels it’s time to exit, it’s better to do what he does, not what he says.
According to data compiled by TipRanks, the last time Musk bought shares of TSLA stock was Feb. 18, 2020. Since then till the time of writing, he has yet to buy TSLA. Indeed, Musk sold shares in November 2021 and April, August, November and December 2022.
Further, TipRanks notes that 43 out of 54 of Musk’s insider transactions were profitable, giving him an 80% success rate. To emphasize, Musk is an expert at buying and selling Tesla stock. Fundamentally, that makes him a little different from Burry, who via Scion Asset Management made several successful bullish calls.
Why It Matters
Regarding the forecast of a stock market crash, it’s useful to use the Burry-versus-Musk debate as a starting point for additional research, not to be married to one particular narrative. For instance, investors may want to consider the broader implications of the yield curve inversion.
In addition, it’s useful to note the Federal Reserve Bank of Chicago’s warning, which stated that “…the yield-curve slope becomes negative before each economic recession since the 1970s.”
Ultimately, the takeaway is that everyone looks after their own interests on Wall Street. With that in mind, the question isn’t so much about who is right about a stock market crash but rather why such an event would materialize.
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.
