Michael Burry Just Bet ALL IN On A Global Crisis

Michael Burry Just Bet ALL IN On A Global Crisis

I’ve spent the past few weeks researching everything about Burry to finally uncover
his intricate investment strategy.
Burry made hundreds of millions on the dot-com bubble and the 2008 recession.
And he now believes he can make billions of dollars in the coming months.
If you search up Michael Burry’s portfolio online, you can find Burry’s disclosed holdings
pretty easily.
That is just what Burry wants you to see.
Burry holds 11 stocks worth a total of $165 million and options contracts worth roughly
$3 million.
Burry’s total public holdings is roughly $168 million, but according to Burry’s form ADV,
he manages $291 million.
So where did Burry invest the remaining $123 million?
This video will explain exactly how Burry just went all in on the incoming market crash.
Before we get into Burry’s confidential holdings, we have to talk about his publicly disclosed
stocks and options.
Michael Burry manages a hedge fund named Scion Asset Management, which needs to disclose
its assets every quarter through 13F filings.
A 13F filing is a form by the Security and Exchange Commission that discloses institutional
stock and options holdings.
Every institutional fund manager that manages at least $100 million in assets must file
a 13F filing.
Michael Burry manages roughly $300 million, so he must complete a 13F filing by law.
On page three of his latest 13F filing, you can see how Burry owns 11 different stocks
and one put option.
All of these stocks are bets on his short term macroeconomic thesis. Burry expects
inflation to continue to accelerate in a cyclical fashion with prices spiraling upwards.
With his inflation thesis in mind, Burry has chosen stocks that will thrive as inflation
accelerates over the next few years.
One of the key factors during inflation is input costs.
Input costs are costs that occur during the creation of a product or service.
Some examples of this include labor, material, fuel, buildings, and equipment.
This is because if prices rise, input costs will as well, and consequently lower profit
margins.
For instance, airline companies are currently dealing with two major input costs: higher
fuel prices and wages.
Airlines have been raising ticket prices, but because inflation is constantly accelerating,
airplane tickets must continuously rise as well.
Higher ticket prices will reduce consumer activity causing airline companies to experience
lower profits.
Michael Burry is fully aware of the importance of input costs during inflationary periods.
He holds 11 stocks worth a total of $164.8 million that have a common theme.
These holdings can be categorized into four categories: travel, tech, healthcare, and
value.
Burry’s two holdings in the travel sector are going to benefit significantly from increasing
oil prices.
For example, Booking Holdings is an online booking company that earns a set commission
on bookings.
As ticket prices rise, so will the profit of Booking Holdings.
The second holding, *Ovintiv, owns a company named Encana that extracts natural gas.
This means that as gas prices rise, so will Ovintiv’s profits.
Michael Burry also owns tech stocks that have little to no input costs.
Companies like Google and Meta are almost entirely based on the internet, which requires
minuscule material costs.
Burry’s holdings in the healthcare sector have the characteristic of having strong pricing
power, which is the ability to raise prices.
Both Cigna and Bristol Myers have relationships and patents that give them substantial market
share.
Lastly, Burry also owns value stocks that are trading at a deep discount to their true
value.
Because the stocks are already trading below their true value, their valuations don’t have
as much room to fall.
Even though I separated Burry’s holdings into four categories, most of the companies
have very similar characteristics.
Almost all of them have extremely high profit margins, major competitive advantages, strong
pricing power, huge cash positions, and low valuations.
The most important characteristic out of them all is pricing power.
Warren Buffet once described pricing power as the most important aspect of any business,
especially during inflationary periods.
Having pricing power ensures that companies will continue to produce profits as inflation
accelerates.
Burry also holds put options on Apple stock. Put options are contracts to sell 100 shares
of stock at a certain price.
For instance, let’s say there is a put option on Google stock that has a strike price of
$3,000 and an expiration date of July 13th, 2023.
This put option gives the owner the right to sell 100 shares of Google at $3,000 by
July 13th, 2023.
Burry has options contracts to sell 206,000 Apple shares, but we don’t know when they
expire or how much they cost.
Based on the current options prices, we can safely estimate the contract price at roughly
$15 per contract.
This means that Burry only has roughly $3 million worth of Apple put options.
The reason why Burry is buying puts on Apple is because of its high input cost for its
hardware products.
iPhones contain a convoluted set of parts that are assembled to create the final product.
These parts are all input costs to make the iPhone.
So now we’ve covered Burry’s disclosed positions that are worth an estimated amount of $168
million.
But with that being said, where is the remaining $123 million that Burry manages?
By using the process of elimination, I was able to find out where Burry is betting his
remaining funds.
There are six places where Burry could be investing the remaining funds.
He could be holding cash, betting on Forex exchanges, purchasing commodities and farmland,
shorting stocks, shorting crypto, or betting against bonds.
The reason why I listed these options is because they do not have to be disclosed to the public
through SEC filings.
The options that I listed are basically the only places where Burry could be investing
his funds.
We can rule out cash because Burry expects cash to lose its value at a frightening pace.
So what about the Forex exchange?
The Forex Exchange is a global marketplace where people exchange government-backed currencies,
also known as Fiat currencies.
Forex trading would involve betting that certain Fiat currencies will outperform others.
For instance, investors could bet on the Chinese yuan, outperforming the dollar by exchanging
the dollar for the yuan.
This would allow the investors to exchange the yuan back for the dollar if the yuan goes
up in value.
While the dollar is depreciating at a fast pace, it has actually been doing well on the
Forex Exchange.
This is because other countries are printing even more money than the US dollar.
Burry explained how, “When you see mention of the strong dollar, the almighty dollar,
please remember this is only in relation to other Fiat currencies.
The dollar is not at all strong and it is not getting stronger.
We all see it every single day in the prices of everything.”
The issue with the Forex Exchange is that you have to bet on a currency outperforming
another, and like Burry stated himself, he can’t short the dollar because it’s relatively
strong compared to other currencies.
The next option is for Burry to purchase farmland or commodities like gold or silver.
We know that commodities in farmland are historically a strong hedge against inflation, but that’s
only when there is moderate inflation.
Burry explained how, “Historically, this chart shows good places to be during significant,
but relatively moderate inflation. In a modern hyperinflation best assets might be somewhat
different in Venezuela, Argentina, Zimbabwe, etc., even farmland wasn’t safe from
confiscation or punitive taxation.”
During hyperinflation, governments typically try to maintain their currency’s power to
prevent a revolt.
Because a drop in a currency’s value puts the government in a weak position, the government
typically taxes or confiscates assets that are performing well to save its currency’s value. In December President Hugo Chavez expropriated
this 4,000 hectare cattle ranch from one of Venezuela’s wealthiest families.
Burry expects double-digit inflation rates for the dollar, which would put the US dollar
in a tight position.
Burry further explained this concept in another tweet by saying, “In an inflationary crisis,
governments will move to squash competitors in the currency arena, $BTC
#gold.”
With these tweets in mind, we know that Burry likely doesn’t hold any commodities or farmland.
Taking on the extra risk of taxation or confiscation simply doesn’t make sense for Burry.
The next option for Burry is for him to short stocks.
Considering that Burry thinks stock prices will crash, it’s likely that he’s shorting
speculative stocks Burry once stated that, “Top to bottom, Microsoft traded 5.2x its
shares outstanding by 2002, 3.3x by 2009 and 0.5x so far.
Amazon traded 5.7x by 2002, 6.6x by 2009 and 0.9x so far.
JPM traded 3x by 2002, 5.9x by 2009, and about 0.7x so far, et cetera.
Enough takes time.”
Michael Burry clearly thinks that stocks are going to fall dramatically in the short term,
so it would be logical to assume that he is shorting stocks.
He once held Tesla put options before exiting in October 2021.
The hints point toward the fact that he likely switched over to outright shorting instead
of put options.
This is because the options premiums became too expensive.
In the same month that he exited Tesla, put options, Burry tweeted, “Meaningful cognitive
dissonance in the market.
80, 90, 100% implied volatility on puts two years out, make roughly 1x money on at
the money put if the underlying, remarkably, goes to zero in two years. Did not used to
be a thing.
Now relatively common, despite the all-time bull market.”
The options premiums were so high that even if stocks like GameStop went to zero in two
years, put option holders would still only be up by 100%.
That is just ridiculous because shorting is a much better option in that situation.
Shorting a stock gives you the same upside of 100% while having no expiration date.
Shorting is when you borrow shares of a stock and sell them on the open market.
Short sellers will then have the goal of buying those shares back at a lower price.
For example, let’s say I sold 100 shares of a stock for 40 euros and bought it back for
35 euros.
Because I bought the shares for five euros cheaper, I am now making five euros for every
share, which is 500 euros in profit.
So instead of buying stocks at a low price and selling them at a high price, short sellers
do the inverse by selling stocks and trying to buy them back at a lower price.
This gives you a maximum upside of 100% if the stock falls to zero, which was exactly
the same as the upside for GameStop put options.
Burry likely switched over to shorting Tesla stock instead of buying put options for this
reason.
In late April 2022, Burry ranted on those who hate short sellers by saying, “If I had
pledged a majority of my share holdings to support personal loans, I might hate short
sellers too, but short sellers on a stock have nothing, zero, zilch, nada, to do with
the success or failure of the underlying business.”
The fact that Burry is ranting against short selling hater shows that he is likely shorting
stocks himself.
Even though we don’t know for sure, there is a high probability that Burry switched over
to shorting stocks instead of buying put options.
The fifth option is for Burry to be shorting cryptocurrencies.
Michael Burry is bearish on cryptocurrencies due to their speculative nature.
Burry has looked into shorting crypto before, but he has decided not to.
In an email to CNBC in late 2021, Burry explained, “I’ve not been shorting cryptocurrencies at
all.
And I’m not now.
I believe that cryptocurrencies are in a bubble and that most in it do not understand it well.”
This allows us to rule out shorting crypto as a possibility.
The last option for Burry is for him to short bonds.
Luckily for us, Burry basically confirms that he was shorting bonds in a tweet he posted.
Burry tweeted in late 2021, “For what it’s worth, I’ve never shorted any cryptocurrency.
This is my third bubble, and the biggest.
I’ve learned a thing or two.
30 year treasuries on the other hand.”
Shorting through 30 year treasury bonds is likely, by far, Burry’s biggest bet.
So why would Burry short 30 year bonds?
The 30 year treasury bond yield is currently at roughly 3%, so bond investors will receive
a 3% annual return if they hold their bonds for the full 30 years.
Bond yields and bond prices are inversely correlated, so an increase in the bond yield
would lead bond prices to fall.
Generally speaking, a rise in interest rates affects long term bonds more.
A 10 year bond price will fall much more than a six month bond as interest rates rise.
The relationship between the bond yield and the bond price is an exponential relationship.
The blue line in this graph is what people might think the relationship between yields
and prices is.
In actuality, the red line shows the true relationship, which is exponential.
This relationship is called positive convexity.
By shorting 30 year treasury bond yields, Burry is shorting the most volatile bond.
Michael Burry is known for taking on unprecedented levels of risk.
He literally invented an entirely new security called Credit Default Swaps in 2008.
This new security allowed him to return 166% to his investors in the first quarter of 2008. We bought basically short 8.4 billion of credit
default swaps related to mortgages or financial companies.
You must have been pretty confident that this
thing was going to blow up.
Well, we had a giant bet for us and I was
extremely confident in the outcome.
In August of 2021, Burry purchased put options on the iShares 20 plus year treasury bonds
ETF before exiting later that year.
Because options premiums are expensive, Burry likely switched over to credit default swaps
and outright shorting.
Credit default swaps are like insurance for bonds.
If you buy earthquake insurance for your house, you have to pay a monthly fee to insure your
house.
The insurer will make money every month, as long as there is no earthquake.
However, in the case that there is an earthquake, the value of your earthquake insurance will
suddenly be worth thousands of times more than the amount you paid.
Credit default swaps are like buying insurance for bonds.
As long as the bond doesn’t default, then investors have to keep paying the monthly
insurance bill.
If the bond defaults, then the credit default swaps insure the value of the bond.
Just like how earthquake insurance is valuable during an earthquake, credit default swaps
are extremely valuable during a bond market crash.
Burry made hundreds of millions by buying credit default swaps in the 2008 recession.
Now he believes he can make substantially more because the government can’t bail out
companies like in 2008.
Burry tweeted, “Regarding residential mortgage-backed security credit default swaps, ancient history,
but because my investors revolted, I was completely out of the trade before any bailouts.
And I hated the bailouts too.
AIG should have been allowed to fail, and Goldman Sachs with it.
Today’s narratives would be very different.”
Burry got lucky last time because he was forced to sell his credit default swaps before the
government bailed out vast arrays of companies.
That being said, he knows that given the current political narratives, the financial infrastructure
won’t be bailed out for the second time.
This brings us to the possibility of Burry buying credit default swaps and corporate
bonds.
Corporate bonds are bonds that are tied to a corporation.
Corporate bonds tend to carry higher interest rates due to the increased possibility of
a default in comparison to the US government.
During the 2008 recession, Burry purchased credit default swaps on mortgage-backed securities
because he believed that the housing bubble would pop.
Now he believes that the traditional financial infrastructure will fall apart.
So it wouldn’t be far-fetched for him to be shorting banks through credit default swaps.
In addition to credit default swaps, Burry is also likely shorting 20 plus year treasury
bonds ETFs like ticker symbol TLT.
This is because the options premiums were too high, so he had to exit his put options
on bonds.
We talked about how Burry is most likely shorting bonds and stocks with his remaining
assets, but he could actually be shorting a person as well.
This might be unconventional, but Burry was once holding put options on Ark Invest.
He tweeted in late 2021, “In 1929, 1973, 2000 and 2008, a better short than any company
was the guy who would be buying all the way down.”
Burry has publicly spoken against Cathie Wood, the CEO and CIO of Ark Invest.
He also once held put options on $31 million worth of Ark Invest shares.
It’s possible that Burry is shorting Ark Invest through a short position rather than put options.
Burry always makes contrarian bets, and his latest holdings are no different.
He turned *$17 million to $270 million by investing in GameStop before everyone else.
His bets are so strange and lucrative that the SEC always investigates him for potential
wrongdoings.
Burry knows that his shocking predictions are going to become true
and movie directors have been eager to get him on for The Big Short 2.
Someone asked Burry in June 2021, “Have they contacted you to make a new movie yet Mike?”
Burry responded by saying, “Believe it or not, yes.
This tweet will self-destruct in…”
While the world is still asleep, Burry recently made the boldest of his predictions.
He now believes that World War three is about to start following the shocking invasion of
a new country.
This part is just one part of a series of videos covering Burry’s audacious predictions.
According to Burry, we’re only halfway towards the end of the pain and there’s an entirely
new phase of compression that’s coming soon.
So hit that subscribe button to make sure you don’t miss out on my next video, covering
Burry’s most appalling prediction.
I noticed that 84% of you aren’t subscribed yet, so please hit that subscribe button as
it’s completely free, and you can always unsubscribe at any time.
If you enjoyed this video, please hit the like button as well.
Thank you for all your support and I’ll see you in the next one.
I ran into an issue with the music licensing! I apologize for the sudden ending and hope you enjoyed the video.

 

 

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