Michael Burry of ‘The Big Short’ says he has found the next market bubble
Michael Burry is one of the first investors to call and benefit from the high-risk mortgage crisis, is seeing a similar bubble in passive investment, according to Bloomberg News.
In addition, Burry is an American doctor, former neurologist, and hedge fund manager. He was the founder of the Scion Capital LLC fund, which operated from 2000 to 2008 and then closed to focus on his own personal investments. Burry was one of the first investors to recognize the subprime mortgage crisis and invest through default insurance (CDS).
Now, it should be noted that passive investments are inflating the prices of stocks and bonds in a similar way as collateralized debt obligations for high-risk mortgages did more than 10 years ago.
What Burry says exactly
“Like most bubbles, the longer it goes on, the worse the crash will be,” Burry said.
“Trillions of dollars in assets globally are indexed to these stocks,” Burry said. “The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.”
“This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue. “
Burry manages about $ 340 million at Scion Asset Management. He shot to fame by betting against mortgage securities before the 2008 crisis. Burry was depicted in Michael Lewis’ book “The Big Short” and the subsequent Oscar-winning movie of the same name.
It should be noted that low-cost passive vehicles have gained popularity on Main Street. Passive investments have now taken over almost half of the stock market as more investors reject stock collectors and go to index funds, according to Merrill Lynch of the Bank of America. Only passive equity funds have skyrocketed to a market of more than $ 3 billion in less than 10 years, according to Morningstar. These funds reflect almost anything that can be traced. They include indexes such as the S&P 500 or the Russell 2000.
Many notable investors have raised the alarm about the proliferation of passive investment. DoubleLine Capital CEO Jeffrey Gundlach said earlier that it is causing widespread problems in global stock markets.
Source: Yun Li | CNBC