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I see Burry as a financial pen-tester. He researches very deeply into the mechanics of how the market works. He's looking into the code. Once he finds a bug, he
by ItsMonkk 5y ago
I see Burry as a financial pen-tester. He researches very deeply into the mechanics of how the market works. He's looking into the code. Once he finds a bug, he finds what effects would occur if the bug occurs. Once he has found something with a big enough impact, then he asks what would trigger it to occur.
In 2006 he found excessive margin being applied to housing. He saw that the Fed was raising their rates. He knew that it was inevitable that this would cause foreclosures. There were massive bets bigger than anything the system could bear, and in fact his bets were a piece of it. Was he early? Yes. Had he been later, would he have got a bigger return? Perhaps not. It was only that he was so early that no one else had a clue that he was given such amazing odds.
Now he sees the bubble is happening because passive investing into the stock market through our 401k's has driven the smart money of the money into front-running that passive investment[0]. He's saying the massive 30% increase in the money supply after CO-VID is going straight into the stock market and that flow is drying up. Every stock is now far above their value, with their 'value' being their net future risk adjusted returns.
Burry sees that this is unsustainable, and he sees that this bubble is now two times of magnitude as large as any other bubble ever created. When a small percentage of people pull their money from the being invested in passive funds, they will quickly overpower the buy pressure and the markets will drop, causing others to pull until they go to 0. His expectation is that once this starts to burst, the Fed is going to have no other choice than to do the same exact thing they did last time, and they have to react faster than last time with no way to think about it. They will print beyond ever thought possible or the system will fundamentally collapse. This is why he mentions Weimar Republic inflation. If 2008 was the previous largest bubble and that costs us 4T, two magnitude is a 400T problem.
So he's asking what the economy will do when 400T is created in the blink of en eye. He's got his money where his mouth is. And particularly importantly, nothing he is saying now can affect the future. Either we are the Titanic, and we already hit the Iceburg, or he's wrong this time. Maybe he's early. But is he wrong?
[0]: https://www.youtube.com/watch?v=x-rJciYZmi0 https://www.youtube.com/watch?v=x-rJciYZmi0
- boldslogan 5y ago>>He's got his money where his mouth is. Looking at his scion capital quarterly report, it seems he has a lot of his portfolio in puts (40%?) then the next 30% in calls then a mixed bag of stocks. https://whalewisdom.com/filer/scion-asset-management-llc#tabholdings_tab_link https://whalewisdom.com/filer/scion-asset-management-llc#tab... to me it seems he is more bearish on Tesla than the market? So it is hard to say he is against the entire market...? Judging by the gigantic position he has against them. Can you clarify what you mean here? Does he have other positions like puts on crypto?
- ItsMonkk 5y agoTSLA is a growth stock, and growth stocks have done extraordinarily well throughout CO-VID. To have a put on TSLA is to have a bet against growth. His TLT and TBT bets are the next largest piece of his portfolio and show what he's thinking. As for Bitcoin, he never said that it would cause a crash, merely that when the stock market does go down Bitcoin will go with it(because of it's reliance on leverage that will get called away) and the effect will be to wipe out all the kids and retail investors that have bet on it. How do you profit on Bitcoin crashing? As you recall, he specifically was worried in 2006 about the banks going under, and Bitcoin has that problem to a much larger degree. If you bet against Tether and Tether goes to 0, there's a good chance all coins go to 0 and you won't be able to receive your winnings. Sometimes the only winning move is not to play.
- OJFord 5y ago> How do you profit on Bitcoin crashing? Sell futures? (I'm not GP nor really disagreeing with anything else you said.)
- rualca 5y ago> TSLA is a growth stock, and growth stocks have done extraordinarily well throughout CO-VID. To have a put on TSLA is to have a bet against growth. This remark sounds very ignorant and miopic. Even with the "growth stock" interpretation, it's very hard to ignore the fact that Tesla's market share is shrinking with increasing competition in Europe and China, and on 2021Q1 Tesla reported $438M profit while recording $518M in revenue from sales of regulatory credits and $100M in Bitcoin sales. I understand the importance of the "growth stock" narrative. Even pyramid schemes are handsomely profitable to investors provided that the next guy is left holding the bag. However, as Burry stated quite clearly, Tesla's numbers are far from healthy and it's market valuation is not justifiable with a rational basis.
- shoto_io 5y agoI believe the point of OT was: it doesn’t matter that much if you view stocks as long-term investments. At its all-time high in 2007 the S&P was roughly at 1,500 points. It returned to this value in 2013 I believe, and is now over 4,500. So in hindsight you could have easily just put all your money into a S&P ETF at its 2007 "all time high" and still would be doing great today.