Recession-Proof investing for beginners by Weiser Will

Author:Weiser, Will
Language: eng
Format: epub
Published: 2022-08-06T00:00:00+00:00

Chapter 10 Michael Burry's Warning for Stock Market Crash

On May 19 2005 Michael Burry bought his first credit default swaps in anticipation of the housing crisis - 60 million of credit default swaps from Deutsche Bank, 10 million each on six different bonds. His prediction; the US mortgage-backed security once a stable respectable investment product had slowly turned into a dangerous and deceptive time bomb - all caused by greed and corruption. In his eyes this bet was no gamble, he did the digging, he read the documents, he knew what the outcome would be. His problem was that it would take the rest of the world another two years to even start looking it took until the 11th of October 2007 for the S&P 500 to top out at 1,576 points. A year and a half later on the 10th of March 2009, the S&P 500 closed at just 676 points a 57 crash. Michael Burry ended up making a personal profit of a hundred million dollars and made his investors over 700 million from this single bet, but in the years leading up to this amazing success, he received constant criticism from the investing world and even his own investors criticism that ultimately led him to close his fund after all had been said and done. But this happened 15 years ago. Well you guessed it - history is currently repeating itself. It was back in February of last year that Michael Burry first warned of high inflation as a consequence of the FED's unprecedented money printing. He was tweeting to prepare for inflation hashtagging doom to repeat and calling out the us Government and the Federal reserve over the trillions of dollars worth of stimulus they'd done, and at this point he was the contrarian. At the time all looked well. The FED was printing money yes but inflation was staying low. at the time the latest published data showed an annual inflation rate of just 1.7% - that's lower than the FED's target but in classic Burry fashion, he was just early. fast forward 12 months and we're now running at a red-hot inflation rate of 8.6% habitually be one to two years early on literally everything and you two can attain broken clock status Burry tweeted a month ago, of course referencing a tweet made by Elon Musk where he labeled Burry as a broken clock. But what's very interesting is that in the past month or so Michael Burry hasn't just been doing victory laps instead he's been tweeting quite extensively explaining why he believes this economic crisis and subsequent market downturn has only just begun. I certainly don't like to be a big doomsday predictor so please don't take this as me fear-mongering, however I do want to at least cover Michael Burry's full rationale to begin to understand what he's thinking, and yes the overarching message is he believes the worst is yet to come. So much so he thinks the S&P 500 could lose another 50% from where it sits today.

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