‘Big Short’ investor Michael Burry rang the recession alarm, bet against the S&P 500, and scooped up bargains in 2023
Michael Burry issued dire warnings, took short positions, and pounced on bargains in 2023.
The investor predicted inflation and recession, and bet against the S&P 500 and microchip stocks.
Here are “The Big Short” star’s three big highlights of the year.
Between his bleak forecasts for the stock market and economy, his bets against the S&P 500 and microchip stocks, and his bargain hunting during the regional-banking crisis, Michael Burry had an eventful 2023.
The investor is best known for predicting and profiting from the mid-2000s housing bubble, after his massive bet was immortalized in the book and movie “The Big Short.” He also placed eye-catching bets against Elon Musk’s Tesla and Cathie Wood’s flagship Ark fund in 2021, and bought into GameStop long before it became a meme stock.
Here are Burry’s three highlights of 2023:
1. Doom and gloom
Burry started the year in classic style with a slew of grim predictions.
“Inflation peaked. But it is not the last peak of this cycle,” he posted on X in early January. “We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition.”
“Fed will cut and government will stimulate,” he continued. “And we will have another inflation spike. It’s not hard.”
Burry proved to be right that inflation would drop by the second half of this year; it has fallen from over 9% at its peak last summer to below 4% in recent months. However, a recession hasn’t materialized so far with US GDP growing by an annualized 5.2% in the third quarter. Inflation hasn’t resurged either, and the Federal Reserve is yet to cut interest rates after raising them to 5% to curb price growth.
The Scion Asset Management boss shared a few worrying charts over the next few weeks, including one comparing the S&P 500’s trajectory at the time to its ill-fated rally during the dot-com crash in the early 2000s.
He sent alarm bells ringing at the end of January when he posted a single word: “Sell.” Burry has been cautioning investors about the current market for a few years now; he bemoaned the “greatest speculative bubble of all time in all things” and predicted the “mother of all crashes” in 2021.
He also issued a warning in February to Bed, Bath & Beyond shareholders that the stock was headed for disaster. The homewares retailer filed for bankruptcy in April, and its shares were delisted from the Nasdaq in May.
Burry appeared to backtrack on his advice to cash out in a March post that read, “I was wrong to say sell.” However, he seemed to strike a mocking tone in a follow-up tweet: “Going back to the 1920s, there has been no BTFD generation like you. Congratulations,” he wrote, using the acronym for “buy the f****** dip.”
2. Bank woes and bargains
Burry weighed in during the regional-banking crisis in March, which saw Silicon Valley Bank, Signature Bank, and Silvergate Capital all fail as customers yanked their deposits. He compared the lenders’ mistakes to the errors made during the dot-com and housing bubbles.
“2000, 2008, 2023, it is always the same,” he posted. “People full of hubris and greed take stupid risks, and fail.”
Even so, Burry correctly predicted the chaos would end swiftly and didn’t pose a serious threat to the wider economy.
The value investor capitalized on market jitters in the first quarter, buying up shares of beaten-down banks including First Republic and PacWest. He spotted other bargains in the second quarter, when he purchased a bunch of energy, commodity, and shipping stocks including Coterra Energy and Sibanye Stillwater.
Burry boosted a few of those positions in the third quarter, including Euronav and Star Bulk Carriers. Yet he also slashed his stock portfolio from 33 holdings to 13 in the period, more than halving its total value (excluding options) from $111 million to $44 million.
3. Short stuff
Burry’s most striking moves of 2023 were on the short side. He purchased bearish put options on two exchange-traded funds that respectively tracked the S&P 500 and Nasdaq-100 in the second quarter. Those positions represented wagers with a notional value of $1.6 billion against those stock indices.
“That is a big position even for a big fund,” Gerry Fowler, UBS’ head of European equity strategy and global derivative strategy, told Business Insider at the time. Even if Burry only paid a tiny fraction of $1.6 billion for the hedges, “the exposure he is using shows a significant amount of leverage,” Fowler said.
The Scion chief made waves again with his third-quarter maneuvers. While he closed out his previous shorts, he bought puts on 100,000 shares of Blackrock’s iShares Semiconductor ETF with a notional value of $47 million. The ETF counts Nvidia, the graphics-chip stock that has tripled in value this year on the back of AI excitement, as its third-biggest holding.
Portfolio disclosures don’t show the days on which trades were made or closed out, but neither of Burry’s bets appears to have paid off. The S&P 500 and Nasdaq both rose between the start of April and the end of September, and the microchip ETF has climbed to a near-record high.
Will Burry speak up again?
Burry rarely talks to the press and hasn’t posted on X since April, meaning there’s almost no context around his moves this year. His followers will be hoping he resumes commenting on markets and the economy in the new year — not just because his posts are frequently colorful, insightful, and prophetic, but also because the current outlook for investors is deeply uncertain.