One of the few investors, Michael Burry, who predicted the financial collapse, worries that the present market chaos may be the beginning of a much worse tragedy.
Burry probably meant the Federal Reserve and other central banks who were rapidly boosting rates to tame stubborn inflation. The US dollar has reached record highs versus other foreign currencies, such as the British pound, due to the Fed’s aggressive rate hikes as well as external factors like the Russia-Ukraine war and China’s ongoing lockdowns.
In addition, the Bank of England started a $70 billion ($65 billion) bond-buying binge this week because the UK’s financial stability was being threatened by rising gilt yields. In an effort to support the Chinese currency, the People’s Bank of China is apparently getting ready for state-run banks to sell dollars and buy foreign yuan.
— Advisory Excellence (@_aenetworking) September 30, 2022
Rising rates, volatile currencies, and government efforts to control markets and avert economic catastrophes are all apparent warning signs to Burry, who is reminded of the frantic period leading up to the Great Recession.
Similar worries have been raised by other academics, who warn that an overreaching Fed might cause a severe recession in the US or “stagflation,” in which inflation rises but growth stagnates and unemployment increases. They have also issued warnings that unstable markets and a decline in public confidence in policymakers could endanger investor and consumer confidence, undermining growth.
Burry gained notoriety for correctly predicting and profiting from the burst of the housing bubble in the middle of the 2000s; the book and movie “The Big Short” made reference to his bet.
The CEO of Scion Asset Management is also renowned for making last year’s bets against Elon Musk’s Tesla and Cathie Wood’s Ark Innovation fund, as well as for investing in GameStop before it turned into a meme stock. In addition, he called it “the greatest speculative bubble of all time in all things” and predicted it would burst in the “mother of all crashes” in June of last year.