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Michael Burry made billions not once, not twice, but three times. That’s right, after predicting the dot-com bubble and the 2008 recession, he also predicted the most recent market correction. The market has already dropped significantly but Burry believes that this is just the start of much more to come. He actually still sees the market crashing over 50% more from the current levels. This video will cover how Burry has already made millions and how you can hedge your portfolio just like Burry.
A lot of investors call Michael Burry a broken clock because he makes the majority of his money from market crashes. Timing the market is notoriously difficult, and Burry is not immune to that. He has been early to every prediction he’s made, but he’s also been right at the end. Burry recently tweeted, “Habitually be 1-2 years early on literally everything, and you too can attain Broken Clock status.” Burry first made his market crash prediction in late 2021. While it’s been a while since then, the situation has played out exactly as he predicted. He foresaw accelerating inflation, a crash in growth stocks, an overall market correction, and a crash in bond prices. Burry is always early, but he always seems to end up right no matter what. One of the key reasons why Burry has been able to predict market crashes is because of the predictability of human nature. While technology has evolved, human behavior never changes and history shows that. Burry said that “3rd time’s a charm. 10 years leading to a financial crisis - Yellow S&P 500 2000, White S&P 500 today, Green Dow 1929. Got to love human nature. Nothing if not consistent.” The yellow line represents the speculation during the dot com bubble. The green line resembles the roaring 20s before the Great Depression. Both of these periods include unprecedented levels of financial risk that ultimately led to a sharp downfall. In the dot-com bubble, we saw unprofitable internet stocks rally 1000 or even 2000% before crashing to zero. The roaring 20s also had ridiculous levels of speculation. Stock prices quadrupled within the span of nine years and most investors were convinced that prices would continue rising. Burry tweeted a newspaper showing how ridiculous the speculation was. The headline explained how even though the market went down for the day, a rally at the market close cheered brokers. Both of these bull runs point towards one behavior, which is greed. This greedy behavior also occurred in 2020 and 2021. While the market might rebound in the short term, Burry sees the market crashing over a one or two-year span. “After 2000, the Nasdaq had 16 bear market rallies 10% averaging 22.7% before bottoming down 78%. After 1929, the Dow had 10 bear market rallies 10% averaging 22.8% before bottoming down 89%.” Burry is essentially saying that the market will undergo short-term rallies, but you shouldn’t take that as a signal of long-term recovery. He further explained his prediction by saying that “dead cat bounces are the most epic. 12 of the top 20 Nasdaq 1-day rallies happened during the 78% drop from 2000’s top. 9 of the top 20 S&P 500 1-day rallies happened during the 86% drop from the 1929 top.” This tweet brings out an intriguing and deceiving correlation. The market always rallies the most during long-term market crashes, which is extremely misleading. Burry has pointed out a lot of correlations, but we all know that correlation does not equal causation. Michael Burry has spotted some frightening fundamentals that are backing up his prediction. Everyone knows that the macroeconomic situation is horrifying. Some economists will tell you that the Ukraine-Russia situation is on the brink of collapse. Others will tell you that China’s economy is weak or US interest rates are going to continue increasing. All of these macro situations may be true but there’s only one factor that will ultimately crash the economy: the consumer. The economy is practically purely driven by the consumer. Almost 70% of the US GDP is just from personal consumption expenditures. If the consumer feels weak at any point, the entire economy will fall apart. The current macro issue centers around the lowering purchasing power of the consumer. If we all stop consuming as much and start saving, the economy is going to crash. Burry said that “This is the problem. Last 18 months -$850B in direct stim checks, $400B in cash out refis, $1+T in forgivable loans ($250-500B of it fraudulent), another $4 trillion indirect, etc. What recapitalizes the consumer now? Higher wages can’t do that.” The economy is experiencing immense price increases and consumers like yourself are feeling that your money is worth substantially less. This lowering purchasing power is not just anecdotal.