The Fed’s aggressive shift in raising interest rates has investors concerned about the risks of inflation and a possible recession. michael burythe Wall Street fund manager who rose to world fame for being portrayed in the movie “The Big Short,” sounded the alarm months ago over the alleged “biggest speculative bubble of all time”.
The head of Scion Asset Management had also warned retail investors amassing meme stocks and cryptocurrencies that the stock market is headed for the “mother of all accidents”.
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According to the Business Insider site, this prediction can come true, “as the S&P 500 and Nasdaq indices are down 15% and 24% respectively this year.” In tweets he has since deleted, Burry has taken credit for calling for a sell-off and explained why he expects more falls.
Michael Burry’s 5 warnings about the next “mother of all crises”
1 – The collapse due to the pandemic was only the beginning
The S&P 500 index rebounded strongly from the pandemic collapse in the spring of 2020, going from a low of 2192 points to 4089 points at the close of Tuesday. However, it could plummet by 54% to 1,862 points in the next few years.Burry tweeted on May 3.
When the S&P 500 collapsed in the past, it traded down several years later, Burry noted. Therefore, he warned that if that trend continues, this index could trade 15% below its level in the spring of 2020.
2 – There may be epic recoveries, but they will be short lived
The “dead cat bounce” In the economic-financial field, it refers to the temporary rebound in share prices after a significant fall, often because speculators buy shares to cover their positions.
They often occur during major stock market crashes, Burry said in a May 4 tweet, so warned that investors should be under no illusions about rallies in the coming months, since this same phenomenon could happen. “It happened in the fall of 2000 and in the Great Crash of 1929,” he marked.
3 – Do not be fooled by the increase in shares
Stocks could stage multiple rallies, he said the next day, but exemplified that after the bursting of the dotcom bubble, the Nasdaq rebounded 16 times -by more than 10%- to then consolidate a fall to its floor with a fall of 78%.
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Burry also emphasized that after the Great Fall of 1929the Dow Jones index recovered 10 times more than 10%, before bottoming out with a drop of 89%.
4 – There is a dangerous trajectory of actions: and history can repeat itself
The fund manager played by Christian Bale in “The Big Short” marked in another tweet on May 8 that the US stock market seems to be following the pattern of previous bubblesmaking it ready for a monumental collapse.
In turn, he pointed out the trajectory of the S&P 500 in the last 10 years, and emphasized the similarity of the index during the decade before the dot-com crisis, and the Dow Jones chart during the 10 years before the Great Crash of 1929. Thus, Burry hinted that “history is repeating itself.”
5 – Burry claims to be warning early as in 2008
The plot of The Big Short, which has him as one of the main protagonists, emphasizes his anticipation, warning before anyone else, about the US housing bubble in the mid-2000s.
So, on May 10, he joked about that background and said that the stock market crash he’s been warning about has finally arrived.
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