“Big Short” big shot Michael Burry is repeating his warning that the U.S. stock market is in the midst of a major crash.
Burry, who’s famous mainly for his bet against subprime mortgages during the Great Recession, is equating current market conditions to the crashes in 2008 and 2000.
Burry tweeted yesterday, “Crypto crash. Check. Meme crash. Check. SPAC crash. Check. Inflation. Check. 2000. Check. 2008. Check. 2022. Check.”
The Scion Capital Management chief’s latest pronouncement comes during a period of prolonged pain for especially paper market investors.
The S&P 500 is down about 18% since January 1st (it hit -24% in mid-June), while the Dow Jones Industrial Average has plummeted about 15% (its 2022 low is -19.8%).
And the techy Nasdaq has fallen about 9% (it’s been as low as -35%) over the same period – all at or into bear territory.
Popular “meme stocks” have struggled during this virtually all-encompassing downturn.
Bed Bath & Beyond shares are down more than 51%, AMC shares have plunged nearly 70% and GameStop shares have fallen about 37% this year.
Burry has also called out weakness in SPACS – special purpose acquisition companies – which boomed during the stock market’s surge after its plunge in March 2020 but have cooled considerably over the last year.
Meanwhile, bitcoin is down more than 60% this year and has dived below $19,000.
By Dave Allen for Discount Gold & Silver
“Big Short” big shot Michael Burry is repeating his warning that the U.S. stock market is in the midst of a major crash.
Burry, who’s famous mainly for his bet against subprime mortgages during the Great Recession, is equating current market conditions to the crashes in 2008 and 2000.
Burry tweeted yesterday, “Crypto crash. Check. Meme crash. Check. SPAC crash. Check. Inflation. Check. 2000. Check. 2008. Check. 2022. Check.”
The Scion Capital Management chief’s latest pronouncement comes during a period of prolonged pain for especially paper market investors.
The S&P 500 is down about 18% since January 1st (it hit -24% in mid-June), while the Dow Jones Industrial Average has plummeted about 15% (its 2022 low is -19.8%).
And the techy Nasdaq has fallen about 9% (it’s been as low as -35%) over the same period – all at or into bear territory.
Popular “meme stocks” have struggled during this virtually all-encompassing downturn.
Bed Bath & Beyond shares are down more than 51%, AMC shares have plunged nearly 70% and GameStop shares have fallen about 37% this year.
Burry has also called out weakness in SPACS – special purpose acquisition companies – which boomed during the stock market’s surge after its plunge in March 2020 but have cooled considerably over the last year.
Meanwhile, bitcoin is down more than 60% this year and has dived below $19,000.
It’s Not Just Stocks Either
A key index that tracks global bonds has also reached bear market territory.
Kate Marino says that market’s behavior this year has thrown a wrench in the traditional 60/40 asset allocation strategy – the approach that if stocks are down, then bond performance will offset losses, and vice versa.
As noted above, the S&P 500 plunged by as much as 24% this year, and though it’s rebounded, many analysts say we’re knee-deep in a bear market.
But most investors’ bond portfolios won't protect them either. A key Bloomberg index of global government and investment grade corporate bonds is now down more than 20% vs. its peak in January 2021 (see chart above).
As Marino points out, a bear market – a 20% decline from a recent peak – is rare for higher-quality bonds, because “they tend to be much less volatile than the stock market.”
The drawdown over the last year and a half is the index's largest fall since it was introduced in 1990.
The question is, will a similar index of U.S. bonds, which is currently down 12.6% from its peak, head closer to – or end up in – bear territory as well.
Mother of All Crashes?
Burry first cautioned in June last year that stocks were heading toward “the mother of all crashes.”
At the time, he cited the irrational fear of missing out – “FOMO” – in the trading of cryptocurrencies and meme stocks as a sign of the volatility.
“All that hype and speculation is doing is drawing in retail before the mother of all crashes,” Burry said, adding:
“When crypto [value] falls from trillions, or meme stocks fall from tens of billions, MainStreet losses will approach the size of countries.”
Now, that’s what I call a stark warning!
Burry raised investors’ eyebrows earlier this summer after his hedge fund sold off its entire stock portfolio – valued at the time at $ – including several Big Tech firms (he did buy a small stake in private prison operator Geo Group).
So, hold onto your hats. In June, Burry speculated that the market downturn was just about halfway over. If you believe him, we have a lot more time until we see a turnaround.
Investor Inflation Expectations Down
As a quick aside, inflation expectations have come down sharply over the last six months, after being on the verge of going out of control in March.
Matt Phillips reminds us that runaway inflation expectations are seen as a key part of out-of-control price increases. So, here’s one sign that we're not facing a 1970s-style battle with persistently high inflation.
Market-based inflation expectations – known as “breakevens” – are derived by comparing yields on typical Treasury bonds (for example, 2-, 5- and 10-year notes) with an “inflation-protected” Treasury.
In recent days, the so-called TIPS have fallen to their lowest level of the year.
They're currently around 2.5%, suggesting that investors expect inflation to average 2.5% a year over the next five years. In March, that metric was 3.6%, well above the Fed's long-term goal of 2%.
In this respect, precious metal investors should be paying attention to any suggestions from the Fed that it’s feeling less intense about inflation, too.
We’re certainly not there at this point of their tightening cycle.