Repo, Debt and Bond Markets in Financial Crisis 2.0, Michael "Big Short" Burry CRASH is Coming's Track Record
Stock-Markets / Financial Crisis 2021 Aug 22, 2021 - 08:04 PM GMTBy: Nadeem_Walayat
This is part 2 of my recent extensive analysis (Part 1) in advance of Financial Crisis 2.0 as a handful of stocks are driving the indices higher, Apple worth $2.3 trillion, Microsoft $2 trillion, Amazon $1.8 trillion, Google 1.8 trillion, Facebook $1 trillion even that over priced pile of poop Tesla came close to being valued at $1 trillion, we are definitely in a bubble, you only need to go onto youtube and watch the to the moon videos of Cathy Wood, literally everything's going to go to the moon because her barely out of puberty Quants decree it to be so. This is clearly a major warning sign of a unsustainable trend when indices are ruled by such a small clique of tech stocks where the greatest similarity is with the dot come bubble in terms of the valuation of stocks that actually produce revenues unlike the largely worthless dot com's of that time.
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! the whole of which has first been made available to Patrons who support my work.
- You Don't Know How Big of a Bubble Your in until AFTER it BURSTS
- Stock Market Summer Correction
- REPO Market Brewing Financial Crisis Black Swan Danger
- Margin Debt Bubble
- US Bond Market Long-term Trend
- Michael "Big Short" Burry CRASH and HYPERINFLATION WARNING!
- Michael Burry's Track Record
- Michael Burry's Portfolio
- Investing During Uncertainty
- AI Stocks Portfolio Buying July Levels Update
- HEDGING AI Stocks Portfolio
- Crypto Bear Market Accumulation State
- Bitcoin Bull / Bear Indicator
- Market Oracle AI Coin Thoughts
- Biotech Brief
So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month that is soon set to increase to $4 per month for new Patrons, so a short window of opportunity exists to lock in at $3 per month.. https://www.patreon.com/Nadeem_Walayat.
REPO Market Brewing Financial Crisis Black Swan Danger
The REPO market, where banks are buying short-term treasuries on an epic scale, on face value this can be explained that the banks are reluctant to lend and so Banks awash with cash are parking their excess deposits with the central banks so that they do not have to increase their capital reserves to cover the excess deposits as the following graph illustrates which is the opposite to the financial crisis when the banks were short on liquidity due to a run on the banks that were seeing liquidity / deposits withdrawn on an epic scale.
Where the mainstream press is concerned this is nothing to worry about and in fact they see it as the banks being an in healthy position, excess cash unlike the financial crisis when there was a run on the banks
Which to me reeks a lot like the mantra going into the financial crisis of a housing market soft landings etc.
So what's the problem if the banks have too much cash, why could it trigger a black swan crash event?
Because just like the financial crisis it is sucking liquidity OUT of the financial system that fractional reserve banking and then the shadow banking system magnify many fold Maybe somewhere between X20 to X40 the reversed REPO amount.
You can see the hidden impact in the financial system as we see a sharp drop off in the commercial loans, as businesses are not borrowing ahead of what? A recession?
Its akin to a run on the banks underway that is sucking money out of the banks for reasons that won't become apparent until after the fact. I could guess at reasons by looking back at what the bankster's did last time i.e. sliced and diced mortgage backed securities and selling CDO's that they could not honour, which they likely have been upto similar tricks of the trade since, hence the demand T-Bills as collateral in what is happening in the the reverse repo market we are probably seeing the early warning signs of Financial Crisis 2.0. A panic rush to hold T-Bills for what ? Not for the 0.05% interest rate! It could be to slice and dice collaterised debt obligations with the Tbills required to give junk bonds a Triple BBB rating.
Anyway sucking money out of the banking system is not good for ASSET PRICES. It is DEFELATIONARY i.e. every asset that has responded to rampant money printing since covid began could now see itself undone in a far shorter period of CRASH time. For at a time of lack of liquidity then which assets do you think will be first to be sold? That's right the most liquid assets, that's your Apples, Google's, Facebook's, and Amazon's.
Stocks, crypto's, bonds, housing, and maybe even gold , everything that has been inflated and leveraged could now quickly deflate in a market panic event when the cookie finally starts to crumble, perhaps when the CDO's and other derivatives markets start to seize up demanding liquidity to be raised from elsewhere..
So whilst currently everything is relatively calm with stocks trading near all time highs, the reality maybe that we are at precipice of a tipping point that could soon snowball into a full blown market panic event with likely economic consequences, of which the reverse repo markets could be the canary in the coal mine because we won't know exactly the hell the banking crime syndicate has upto behind the scenes until AFTER the event! But I can guess that just as the Financial crisis of 2008 was built on bets on top of bets on top of bets then so will it be so this time.
Margin Debt Bubble
One of the mechanisms for this deflation will be the unwinding of the margin debt bubble where there does exist some correlation between market peaks and troughs i.e. buy deviations from the high. Though has been a poorer indicator for market tops for the past decade, nevertheless is flashing a warning that the current level of leverage could result in a sizeable stock market drop on par with that of March 2020, so the stock market is trading on borrowed time.
Even worse is that the surge in mortgage debt is in large part to do with investors who should NOT be investing on margin such as Robinhood allowing anyone to sign up to a margin account i.e. very weak hands.
Also I suspect the banks will be bailed out again so as to prevent debt deflation and so expect to see much higher QE than what we have seen so far.
Hence why I DE-RISKED over valued AI stocks at the HIGHS!
On a side note it's much worse for crypto markets because the exchanges allow use of other crypto's as collateral, however all crypto's fall together which means margin calls are going to happen far earlier than with stocks which results in far greater price falls due to forced sellers which actually happened on 20th May when Bitcoin had a flash crash which resulted in forced closure of leveraged positions and further selling of Alt Coins. And if that were not bad enough then we have Tether USDT! A ticking bomb! Imagine the amount of forced selling that will create when it implodes! Easily drop crypto prices by 70%!
US Bond Market Long-term Trend
The screeching that one hears from the likes of Michael "Big Short" Burry is that the US Bond market is about to collapse. We'll all I can see when looking at the long-term chart is that since the pandemic panic bond market spike of March 2020, bonds have been in a correction against it's primary bull trend, and that correction appears to have ENDED.
So just as the shrill calls of bond market doom reached their most vocal the bond market bottomed and started trending higher. So unless the likes of Michael Burry are right once more than clearly the bond market has resumed it's bull market aided by infinite Fed quantitative easing. Looking at this chart one can clearly see that late 2018 was a GREAT time to buy bonds and why April 2020 was a great time to SELL bonds, but right now, we are pretty much in the middle of the bond market trading range which favours upwards price pressure rather than downwards regardless of what Michael Burry tweets should happen.
Michael "Big Short" Burry CRASH, HYPERINFLATION Bond Market COLLAPSE WARNING!
Michael Burry the guy who was apparently one of the first to state that the mortgage backed securities would CRASH the US housing market then popularised by the movie "the Big Short" latest calls and heavy bets have been placed against stocks and bonds in advance of the next big market collapse triggered by interest rate hikes and hyperinflation which has gained much media attention and many traders to follow suite by trying to replicate his short positions.
Personally I don't see any connection between meme stocks, crypto's and the general stock market. Though indirectly it does involve the big elephant in the room that has fed the crypto and meme stocks, namely leverage. So a mechanism rather than the actual assets is what could drive a crash i.e. a general unwinding of leverage, where the most liquid of assets would be hit the hardest.
Michael Burry's Track Record
But what about his track record, after all he made it big some 12 years ago so the hedge fund that he manages must be worth tens of billions by now? So here is his hedge fund Scion Asset Managements reported portfolio values overplayed with the Dow.
Where are all of the billions?
Michael Burry's performance to date suggests that he GOT LUCKY in 2007-2008 since which time up until December 2018 consistently LOST MONEY, probably betting against the greatest stocks bull market in history and Treasury Bonds! Furthermore his fund was going nowhere until he GOT LUCKY with GAMESTOP, which was only because the sub-redit Wall street bets brigade jumped on the bandwagon without which his fund's performance sucks.
Ask yourselves would you invest in a fund that had lost money for a decade during the greatest bull market in history only to turn a profit due to a sheer luck on a penny stock?
The Michael Burry you see on MSM is a myth! Not some autistic quaint who has an edge but a gambler who perhaps gets lucky once per DECADE! What's more gamblers tend to GIVE BACK everything they win!
Michael Burry's Portfolio
According to his recent 13F filing (31st March) here is a actual breakdown of his economic collapse is coming portfolio.
SHORT TESLA
40% of his portfolio comprises Tesla shorts, that's a BIG GAMBLE. that does not look like it's paying off given that Tesla currently trades at $680. Whilst I too am bearish on Tesla, however I would consider myself as being insane if I BET 40% of my portfolio on a Tesla short! Which speaks volumes about Burry's gambler mindset.
SHORT T Bonds
Next Burry is short US treasury bonds to the tune of 17% of his portfolio, including leveraged inverse ETF's. Which if the long-term trend continues than that's going to soon become a losing trade.
LONG Google and Facebook
He is long two of my primary AI stocks to the tune of 25%! Maybe that's a good sign that I was correct to reduce my exposure to both of these stocks by 50% and 70% respectably i.e. do the opposite of Burry..
That's 82% of Michael Burry's portfolio, 57% short hedged by 25% long. With the rest mostly long. So the portfolio is mainly a bet against Tesla, an over leveraged over hyped auto tech stocks the likes of which Cathy Wood is obsessed by and short T-bonds, whilst long a couple of AI tech stocks, so to me apart from the bet against Treasuries it does not seem THAT much of an end of the world economic collapse portfolio at work, i.e. the likes of the Dow could barely budge from where it is trading today and Michael Burry could still win big. Just goes to show how clueless mainstream media and blogosfear are, they don't have a clue what they are talking about. Now if he had shorted Google and Facebook THEN you could make a case he was betting on economic COLLAPSE. This portfolio is quite sensible for a HEDGE FUND. The stock to short IS TESLA, whilst I am not so sure it's wise to be betting on leveraged ETF's that could probably be a loser for Burry, still if he is wrong Facebook and Google will cover the Treasury Bond position.
At the end of the day the guy is a gambler who tends to lose far more often then he wins as illustrated by the fact that his funds value was virtually wiped out by Mid 2018. Therefore anything he makes is likely to be short lived before he gambles it away! Instead we have all these clowns on the MSM and youtube hanging on his every word when in reality he should be used as a contrarian indicator, do the opposite and you will win far more often than not, which in this case implies to Buy Tesla, Buy Bonds and Sell Google and Facebook!
So put a Short on Michael Burry to eventually LOSE it ALL ONCE MORE!
This analysis is an excerpt from my recent extensive analysis evaluating the prospects for a Financial Crisis 2.0 - Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! the whole of which has first been made available to Patrons who support my work.
- You Don't Know How Big of a Bubble Your in until AFTER it BURSTS
- Stock Market Summer Correction
- REPO Market Brewing Financial Crisis Black Swan Danger
- Margin Debt Bubble
- US Bond Market Long-term Trend
- Michael "Big Short" Burry CRASH and HYPERINFLATION WARNING!
- Michael Burry's Track Record
- Michael Burry's Portfolio
- Investing During Uncertainty
- AI Stocks Portfolio Buying July Levels Update
- HEDGING AI Stocks Portfolio
- Crypto Bear Market Accumulation State
- Bitcoin Bull / Bear Indicator
- Market Oracle AI Coin Thoughts
- Biotech Brief
So for immediate first access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month that is soon set to increase to $4 per month for new Patrons, so a short window of opportunity exists to lock in at $3 per month.. https://www.patreon.com/Nadeem_Walayat.
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- Stock Market Bubble Valuations 2000 vs 2021
- Microsoft to the Moon - OUCH!
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- INTEL to the Moon - OUCH!
- Tech Stocks in a Bubble today?
- China / US Stock Markets Divergence
- AI Stocks Portfolio Buying and SELLING Levels
- AI Stocks Portfolio Buy / Sell Table Update
- High Risk Stocks
- Market Oracle AI Coin Mothballed
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- BITCOIN HALVINGS TREND TRAJECTORY
- Stock to Flow Infinity and Beyond!
- Bitcoin, Crypto's and the Inflation Mega-trend
- Black Swan 1 - Will Crypto's Get Banned?
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- BLACK SWAN 4 - Bitcoin 51% Network Attack by China?
- Black Swan 5 - Bitcoin is Already Obsolete
- US Trending Towards Hyperinflation
- BITCOIN TREND ANALYSIS
- Bitcoin Bear markets analysis - How low could she blow?
- Bitcoin Trend Forecast
- Bitcoin Long-term probable Next bull market price target
- Alternative Scenarios
- My Crypto Bear Market Investing Strategy
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- Crypto's 7 to 10
- Creating The Perfect Crypto
- How to Invest in Crypto Without Getting SCAMMED
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Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
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