Michael Burry’s Tweet and Delete

9/27/2021

Markets

0 min read

Michael Burry is Tweeting About the Markets and His Subpoena

About three times a year, I click to re-follow Dr. Michael Burry’s Twitter account. This is because he deletes his account about three times a year after tweeting something that I suspect he regrets. Recently the hedge fund manager that shorted the mortgage market before the financial crisis of 2008 has been tweeting and deleting up a storm. The topics are GameStop (GME), and general market and economic perceptions.

Market Tweets

In a recent flurry of tweets, he wrote the current market boom reminds him of the dot-com bubble. He compared the options-trading frenzy to the rampant speculation that helped cause the Great Depression. These tweets have since been deleted, presumably by Burry.

Burry also repeated his expectations related to index investing that he first presented openly two years ago. That is, index funds are in a bubble of sorts as demand for weak companies is increased by the larger and stronger components, meanwhile, there is little fundamental analysis to investing in indexes as opposed to individual stocks.

Burry tweeted a link to a research paper dated June of 2021 about inelastic markets. The research demonstrated that the US stock market’s value rose by $5 for every $1 invested in it. The famous hedge fund manager that runs Scion Asset Management noted the majority of millennials use passive vehicles such as index funds to buy stocks. This could further stretch prices without proper evaluation. Burry wrote, “That 5:1 ratio will get much, much sillier in time,” adding that the imbalance is a “product of a paradigm.”

Again, related to the overall market, the hedge fund manager compared the bull market during the 15 years that lead to 2000 to the growth in valuations in stocks over the past 15 years. He highlighted a 94% correlation between the Nasdaq 100’s performance in each of those periods and a 95% correlation for the S&P 500 index.

Michael Burry warned that the US stock market is risky and accused the Federal Reserve of misleading investors. He said he was not investing in America’s largest technology companies.

The Scion founder and investment officer drew a parallel between the surge in people trading options on meme stocks and the widespread speculation that preceded the Wall Street Crash of 1929. He showed parallels to an article about the options mania with a quote by a statistician named Leroy Peavey in November 1929. Peavey blamed the market crash that year on a wave of leveraged speculation that pulled in “elevator boys, typewriter girls, and even schoolchildren.”

GameStop Tweet

While best known for his market shorts and portrayal in the book/movie The Big
Short, he also was instrumental in bringing to light the potential of the GameStop short squeeze, which set off trading activity that caught many professionals off-guard. Related to recent events related to his investigations surrounding meme stock trading, Burry wrote, “So, who got an SEC subpoena over $GME? Actually, I know who, they’re on my subpoena. With all that’s going on in the world…” Burry tweeted in a now-deleted post on Friday. He attached a copy of the SEC letter dated Sept. 21.

The hedge fund manager had been trading GameStop shares and publicly commenting on the meme stock for the past few years. At the end of 2018, Burry first revealed a $6.8 million position in the video game retailer. In 2019 he told Barron’s that new consoles from Microsoft and Sony would “extend GameStop’s life significantly,” which fueled a rally in the shares. However, when the massive GameStop short squeeze shocked Wall Street in January, Burry turned into a vocal critic of the stock, saying the trading in GameStop is “unnatural, insane, and dangerous” and there should be “legal and regulatory repercussions.”

Take-Away

Burry has been sounding alarm bells over Twitter and in interviews with Bloomberg for a couple of years. He’s warned of overvalued stocks dragged up by investors investing in market indexes rather than individually selecting stocks, he’s highlighted unsustainable levels of speculation in meme stocks, cryptocurrencies, and other assets and suggested it could lead to the “mother of all crashes.”

Paul
Hoffman

Managing Editor, Channelchek

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