A Knife's Edge

Have you ever heard of Dr. Michael Burry? You will have if you've seen the film "The Big Short", or if you've been involved in the stock markets. And he has a warning we should all take to heart...

The Big Short is a 2015 film about the build up to the 2007 financial collapse. Michael Burry, played by Christian Bale, discovers in 2005 that the United States housing market, based on high-risk subprime loans, is extremely unstable, and, anticipating the market's collapse in the second quarter of 2007, as interest rates would rise from adjustable-rate mortgages, he proposes to create a credit default swap market, allowing him to bet against, or short, market-based mortgage-backed securities, for profit. No one believes him though and even his main client, who initially backed Burry, starts to accuse him of wasting money and even sues him. We all know the end of this story: Burry was right all along and the markets did collapse, and his funds increased almost 500% in value with an overall profit of 2.69 billion dollar.

Dr. Michael Burry was right back then, and now he has a new warning, this time about an upcoming collapse due to hyper inflation and rampant speculation, with the latter being a consequence of the former. I've already touched on this on several occasions in the recent past, but if you've read my post No Reserve Disaster two months ago, you'll already have an idea about the gist of Burry's new alarm. On April 6th "Business Insider" published an article with the headline 'Big Short' investor Michael Burry deletes his Twitter profile after warning of market bubbles for months. Here's a snippet:

Burry is best known for his billion-dollar bet against the US housing bubble in the mid-2000s, which was immortalized in the book and the movie "The Big Short." He also helped lay the groundwork for the GameStop short squeeze in January, as he bought a stake in the video-games retailer in 2019 and penned several letters to its board.

The investor vowed to stop tweeting last month after federal regulators paid him a visit. Prior to that, he used Twitter to issue warnings about Tesla stock - which he's short - as well as GameStop, bitcoin, Dogecoin, SPACs, inflation, and the broader stock market.

Now, it goes without saying that I do not share his opinion on bitcoin; I see bitcoin as a hedge against a hyper inflation eventuality. But his general warning has to be taken seriously. In one of his last tweets before he deleted his Twitter profile he said that the markets are "dancing on a knife's edge", and I think he's right. Again. So, watch the short video linked below and the one linked above if you want a bit more in-depth information. The TLDR is this: since the start of the pandemic last year, the FED has been printing money at a rate never before witnessed, which has inflated stock prices and investors' tendency to take ever more and bigger risks with extreme leverage trading. Once the Fed is forced to raise interests again, this house of cards will come tumbling down. It's not a matter of if, just a matter of when...

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