Michael Burry is a smart investor.
He is one of the legends of Wall Street, which makes him one of those financiers whose every word is followed closely by millions of investors.
Investors watch his strategies and the business choices he makes. When he acquires shares of a company, it is common for these share prices to go up. This was the case again recently with Geo Group stock (GEO) – Get a free report.
He bought, through his company Scion Asset Management, 501,360 shares worth $3.31 million of the company that invests in private prisons and psychiatric facilities, as of June 30, according to regulatory filings.
Since he announced his stake in Geo on August 15, shares of the group have risen 34.2%. Geo Group shares are up 19% since January.
On November 14, he revealed a new stake in the owner of the home shopping channel (QRTEA) – Get a free report. The following day, the stock closed 17% higher, its highest level since November 2020.
The huge bet
The investor earned the reputation as a stock maker by successfully betting on the collapse of the US housing market in 2007. He then became a household name after the 2015 movie “The Big Short” which depicted his bet on the subprime mortgage. collapse that led to the financial crisis of 2008.
What most people tend to forget is that on the other side of Burry’s contracted CDOs (mortgage collateral) was the prestigious investment bank Goldman Sachs. CDOs are loans, mortgages and other assets that investment banks package and offer to institutional investors.
In the book “The Big Short: Inside the Doomsday Machine” by Michael Lewis, it is said that Burry decided to bet on the implosion of the subprime market after noticing that many people could not actually afford to pay their mortgages. But lenders found new financial instruments to justify their more money.
“It was a clear sign that lenders had lost it and were constantly lowering their own standards to grow lending volumes,” Burry said.
Lenders sold these loans to Goldman Sachs, Morgan Stanley, Wells Fargo and other “too big to fail” banks, who wrapped them in bonds and sold them. These practices almost brought the financial system to its knees. They caused the worst financial crisis since 1929.
Burry has been sounding the alarm about the state of the economy for several months now. He believes it will inevitably go into recession. He says he foresees a household debt crisis that would pose a serious threat to the economy.
“Remember the overspending problem? Not anymore. COVID helicopter money taught people to spend again, and it’s addictive. Winter is coming,” Burry warned last August.
‘Winter coming’ seems to be a reference to the HBO series ‘Game of Thrones’. Characters used the phrase as a warning.
A mysterious bet
“13.48% of stocks closed above their 200-day moving average yesterday,” Burry, who manages hedge fund Scion Asset Management, said on Twitter Oct. 1. “The bottom in 2009 was 1.2%. The bottom in 2020 was 2.8%. Currently at 2007 levels.”
He then confirmed this gloomy forecast by liquidating almost all of his US stock portfolio in the second quarter.
But he resumed buying stock in the third quarter, according to regulatory records. As of September 30, Scion’s portfolio of US-listed companies comprised six companies.
He bet on Aerojet RocketDyne (AJRD) – Get a free reportCharter communication (CHTR) – Get a free reportCore citizenship (CXW) – Get a free reportGeo Group, Liberty Latin America (LILAB) – Get a free report and Qrate Retail. In total, his stock portfolio has a total value of $41.3 million, up $38 million from three months earlier.
A few days after revealing these new bets, Burry has just sent a cryptic message suggesting he’s also bet big on the collapse of a company’s stock or the fall of an industry, or even an asset class.
“You have no idea how small I am,” Burry posted on Twitter on Nov. 15. The tweet has since been deleted, as is often the case with all of his posts.
Burry is not disclosing his position. He makes social network users speculate. They embarked on a guessing game that mainly involved technical group names. Burry had liquidated the shares of Alphabet and Meta Platforms he owned in the second quarter.
What is certain is that Burry has caused a stir again as many wonder if he is really talking about a bet or if he is talking about his height. The financier would be 5′ 6” tall.
Short selling stocks is a bet that the stock price will fall.