(TheStreet) - Michael Burry is a savvy 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 to see these share prices go up. This was again the case recently with the stock of the Geo Group (GEO) - Get Free Report.
He bought, through his firm Scion Asset Management, 501,360 shares worth $3.31 million, of the company which invests in private prisons and mental health sites, as of June 30, according to regulatory filings.
Since he revealed his stake in Geo on August 15, the group's shares have gained 34.2%. Since January, Geo Group shares are up 19%.
On November 14, he revealed a new stake in the home-shopping channel owner (QRTEA) - Get Free Report. The following day, the stock closed higher by 17%, the most 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 film "The Big Short", which depicted his bet on the subprime-mortgage meltdown that sparked the 2008 financial crisis.
What most people tend to forget is that, on the other side of the mortgage collateralized debt obligations’ (CDOs) bet made by Burry, there was 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" from Michael Lewis, it is said that Burry decided to bet on the implosion of the subprime market after he noticed that a lot of people couldn’t actually afford to pay their mortgages. But lenders were finding new financial instruments to justify handing them more money.
"It was a clear sign that lenders had lost it, constantly degrading their own standards to grow loan volumes,” Burry said.
Lenders were selling these loans to Goldman Sachs, Morgan Stanley, Wells Fargo and other "too big to fail" banks, which packaged them into bonds and sold them off. These practices almost brought the financial system to its knees. They caused the worst financial crisis since 1929.
For several months now, Burry has been sounding the alarm about the state of the economy again. He believes that it will inevitably fall into recession. He says he foresees a household debt crisis that would pose a serious danger to the economy.
"Remember the savings glut problem? No more. COVID helicopter cash taught people to spend again, and it's addictive. Winter 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 runs hedge fund Scion Asset Management, said on Twitter on October 1. "Bottom in 2009 was 1.2%. Bottom in 2020 was 2.8%. Currently at 2007 levels."
He then confirmed this dire prediction by liquidating almost all of his U.S. stock portfolio in the second quarter.
But he resumed buying stocks in the third quarter, according to regulatory filings. As of September 30, Scion's portfolio of US-listed companies included six companies.
He bet on Aerojet RocketDyne (AJRD) - Get Free Report, Charter Communications (CHTR) - Get Free Report, Corecivic (CXW) - Get Free Report, Geo Group, Liberty Latin America (LILAB) - Get Free Report and Qurate Retail. In total, his equity 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 which suggests that he has also bet big on the collapse of either a company's stock or the fall of an industry, or even an asset class.
"You have no idea how short I am," Burry posted on Twitter on November 15. The tweet has since been deleted as is often the case with all of his posts.
Burry does not reveal his position. He leaves social network users to speculate. They embarked on a guessing game involving mostly names of tech groups. Burry had liquidated the Alphabet and Meta Platforms shares he held in the second quarter.
What is certain is that Burry has caused a stir again because many are wondering if he is really talking about a bet or if he is talking about his height. The financier is said to be 5' 6” tall.
Short selling stock is a bet that the stock price will drop.
By Luc Olinga
November 16, 2022
