2008 was a big year for Michael Burry, the prophetic bearish better of “The Big Short.” Burry made bank on the mortgage crisis then, and he expects similar returns in the current downturn.
“I would say despite the viciousness of the sell-off, there has not been enough time for the buy-the-dip mentality to truly go away,” Burry said. “But the fear in the markets is being paralleled by growing fear of the virus, and the twofer is toxic to market sentiment.”
He expects the coronavirus fear to burst the passive investment “bubble” that he’s worried about since August. Burry has compared the passive investment trend and related stock price distortion to the housing bubble and related subprime mortgage distortion.
“I have had a significant bearish market bet that is working out for now,” Burry told Bloomberg.
“A global pandemic is absolutely a potential trigger for the unwinding of the passive investing bubble. With Covid-19, the hysteria appears to me worse than the reality, but after the stampede, it won’t matter whether what started it justified it.”
Central bank stimuli will do little to arrest the fallout, in Burry's view.
“No one knows how long it will last, and so people have a valid reason to sell,” Burry said. “If you are in stocks because they have been going up and because the central banks always could apply the brakes to any sell-off, well, those pre-conditions are not currently valid.”
Despite the volatility, Burry said he’s yet to see any market dysfunction that would inhibit trader ability to capitalize on investment opportunities. Burry said he plans to soon divert money from bearish bets to stocks. He’s seeking out small-caps that have suffered collateral damage as well as businesses aided by the oil collapse.