The ‘Big Short’ investor who called the 2008 stock market has made a $1.6bn (£1.3bn) bet on a second crisis by the end of this year.
Michael Burry, the Wall Street trader who predicted America’s subprime mortgage crisis in the 2000s, the spark which ignited a global financial meltdown, has made a bet against the S&P 500 and Nasdaq 100 stock indices, according to filings with the Securities and Exchange Commission, the American financial regulator.
Mr Burry’s firm, Scion Asset Management, has bought $866m in “put options” against a fund that tracks the S&P 500, the American benchmark index. These give investors the right to sell shares at a fixed price in the future and means that he could make a profit if shares fall.
The firm has also bought $739m in bets against a fund that tracks the Nasdaq 100, which follows some of America’s largest technology companies.
Such is his conviction, Mr Burry is using more than 90pc of his fund’s portfolio to bet on the downturn, according to reports.
The interesting thing is, well, why would anyone bother to be in the fund in that case? It’s possible to short directly…..
It was difficult to go short housing. Short stock indices is something you can do on your phone.
One commenter on a thread about this guy stated “Michael Burry has correctly predicted 12 of the last three recessions.”
You use his fund rather than short directly to gain his “expertise”. In this particular case it is the timing of the shorts that is important. Is he correct or is this prediction 13 out of 3?
why would anyone bother to be in the fund in that case? It’s possible to short directly…..
We may well see a major decline in stock prices. But that unlikely to a smooth downward line. It’ll be same as a rising market. A series of valleys & peaks, falls & rallies. As an individual shorter, you get your timings wrong you could get washed out of the game. If this guy knows what he’s doing, he could play that market all the way down, making money out of the rallies as well as the falls. On past form one would give him a conditional thumbs up
The description in the article is a bit simplistic because you don’t know the option prices or any periods. For a trader, you can make money out of any market, irrespective of which way it’s going. All you need is that it is moving & getting it right. The second one’s a big ask, of course.
You use his fund rather than short directly to gain his “expertise”. In this particular case it is the timing of the shorts that is important. Is he correct or is this prediction 13 out of 3?
That’s not investing. It’s gambling. You want to bet? Be my guest. But don’t pretend this is anything other than following a gambler.
Personally, I can’t imagine why it wouldn’t turn out well.
“Michael Burry has correctly predicted 12 of the last three recessions.”
That’s nothing. Spud has correctly predicted 35 of the last 3 recessions.
It’s quite difficult for a private individual to short stocks or bonds, especially foreign ones. And you need a wad to pay the margin calls every time there’s a technical uptick. So a fund can make sense.
Because I’m an optimist my target price for Moderna and Gilead (among others) is zero.
It’s all gambling, Dennis. Even investing. Everything depends on thinking you can price better than the collective opinion of the market. That’s how one chooses an investment, isn’t it? The belief that the collective opinion of the market is undervaluing it.
The beauty of managing the fund is that he can sell first if it starts to look dodgy. Whilst he is initially going to put 90% of his portfolio into the fund it’s quite possible he may choose to reduce that stake as other join. If he plays it right he can reduce his stake to 0% before the predicted crash date and make the money on the funds commission and exit fees irrespective of which way the market moves.
BiS : my investments are all solid dividend paying firms with decent long term prospects.
The gambling aspect is minimal.
That’s actually the norm for investing in shares. Trading in the hopes of short term gain is gambling, but it only occurs on the margins.
Well, yeah, then Hawaiian Electric, the local dividend paying utility, doesnit cut off the pwer from a solar farm in high winds and goes bust. As PG&E did before it.
The BiS point is that at some level it’s all speculation. Which is it, obviously, just speculation at different levels of volatility and risk.
Tim
A pity the lawyers can’t plunder the Greens for preventing controlled burns and the creating of fire breaks.
But I suppose there’s no money in that.
I invest,
You speculate,
He gambles.