Months after dumping his entire portfolio and loading up on a single stock, Scion Asset Management founder, renowned investor of The Big Short fame, and perma-bear – Dr Michael Burry – has issued yet another dire warning: this one concerning an “extended multi-year recession.”
“What strategy will pull us out of this real recession? What forces could pull us so? There are none. So we are really looking at an extended multiyear recession,” Michael Burry wrote in a since-deleted tweet, as per his modus operandi.
The good doctor famously portrayed by Christian Bale in Adam McKay’s Academy Award-winning adaptation has long maintained the combination of consumers spending their savings, the spectre of inflation, and corporate profits being on track to tack a significant hit has essentially guaranteed a recession. And at the current stage, it’s hard to think otherwise.
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Burry sounds the alarm shortly after US Federal Reserve Chair Jerome Powell acknowledges the window for a “soft landing” – a situation in which the Fed cools inflation by slowing growth without causing a recession – is narrowing. Regardless, the man behind the money printer believes escape is still possible. Hence why interest rates will continue to face hikes.
“No one knows if there’s going to be a recession or not, and if so how bad it would be,” said Jerome Powell before reminding the public it’s the Fed’s job to restore price stability.
But Dr Michael Burry isn’t the only household name who thinks a significant event is on the horizon, due in part to the Federal Reserve.
Co-Founder of Boston asset manager GMO – Jeremy Grantham – is someone else with a proven track record when it comes to forecasting bubbles, most notably having anticipated:
- Japan’s asset price bubble in the 1980s
- The dot-com bubble of the late 90s
- and similar to Burry, the US housing market crisis prior to 2008
So when Grantham warns us about a “super bubble” that’s on the precipice of popping, it might be worth paying attention.
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Despite all the downturns and market routs we’ve already witnessed throughout 2021/2022, the 83-year-old Wall Street veteran predicts the “worst has yet to come.” In a research note published back in August titled ‘Entering The Super Bubble’s Final Act,’ he explained:
The current super bubble features an unprecedentedly dangerous mix of cross-asset overvaluation – with bonds, housing, and stocks all critically overpriced and now rapidly losing momentum – commodity shock, and Fed hawkishness. Each cycle is different and unique – but every historical parallel suggests that the worst is yet to come.
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Grantham believes the breaking of a “super bubble” occurs through the following stages:
- “First, the bubble forms.”
- “Second, a setback occurs, as it just did in the first half of this year, when some wrinkle in the economic or political environment causes investors to realise that perfection will, after all, not last forever, and valuations take a half-step back.”
- “Then there is what we have just seen – the bear market rally.”
- “Fourth and finally, fundamentals deteriorate and the market declines to a low.”
“If history repeats, the play will once again be a tragedy. We must hope this time for a minor one.”
“Long thought that the time for gold would be when crypto scandals merge into contagion,” Michael Burry stated in yet another since-deleted tweet just a few weeks ago.
“You have no idea how short I am.”
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