Are we going to relive the 2008 financial crash?
The question has been on the minds of people since a cryptic May 24 tweet from iconic investor Michael Burry, who is known for being one of the first to bet against subprime mortgages in the mid-2000s. Burry accurately predicted the collapse of the housing bubble. The hit film ‘Big Short’, in which his role is played by actor Christian Bale, shows his incredible commitment against the current of a euphoric market.
“Like I said about 2008, it’s like watching a plane crash,” Burry wrote on Twitter on May 24. “It hurts, it’s not fun and I’m not laughing.”
He added no further posts, leaving Twitter users and investors to speculate. The confusion added to the nervousness.
The Nasdaq Composite fell 2.4% while the S&P 500 fell 0.8%. The Dow rose 0.2% in a late day reversal, despite falling as much as 1.6% earlier in the session.
Investors are concerned about an overheated economy and fear a recession is on the way. They are currently panicking at any sign suggesting an economic slowdown. That was the case on Tuesday, May 23, when social network Snap Inc †SNAP) – Get Snap, Inc. Class A Report has issued a profit warning over supply chain disruptions, rising prices and Russia’s war in Ukraine, which has made companies hesitant to spend on digital advertising.
“2008 housing market responsible but 2022 what reasons???” one Twitter user asked Burry.
“The sheer volumes of Monroe printing have created a bubble on every single property. 2008 was nothing compared to what is to come. A house that should be valued at 500k is now 2.2 million is insane. The US dollar as a currency has been destroyed ,” replied another user.
“Is everything a bubble? or are western currencies overvalued?” asked another user.
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“Stop comparing this to 2008,” another user tried to reassure others. “It’s not at all like 2008. Dare I say we are in better conditions than in 08. Better connected and better prepared. Tech is on our side too, news spreads faster. Sentiments can change in an instant in the world of today. (No pun intended).”
Nervousness and bad news
All these messages show the panic and nervousness that investors are currently dealing with. They are desperate for a glimmer of hope in a landscape that is completely weighed down by bad news. Almost all asset classes are affected, even cryptocurrencies, including bitcoin, which was supposed to be a hedge against inflation.
The S&P 500 is in its seventh straight week of decline, its worst run since 2001. Big Tech stocks like Apple †AAPL) – Get Apple Inc. ReportMicrosoft †MSFT) – Get Microsoft Corporation ReportAlphabet †GOOGL) – Get Alphabet Inc. Class A ReportAmazon †AMZN) – Get Amazon.com, Inc. ReportTesla †TSLA) – Get Tesla Inc ReportFacebook (meta platforms) †FB) – Get Meta Platforms Inc. Class A Report or Nvidia †NVDA) – Get NVIDIA Corporation Report decline despite solid fundamentals. Investors seem confident that companies will soon be announcing bad news.
On a macroeconomic level, the housing market is cooling down: new home sales had fallen, with high prices and a sharp rise in mortgage rates.
Market participants are also eagerly awaiting the latest reports on weekly mortgage applications and durable goods orders before markets open on May 25. Investors expect the latest Federal Open Market Committee meeting minutes.
Hours after his tweet, Burry deleted these and other posts. He is known for often deleting his tweets afterwards.
On May 16, Burry, who runs Scion Asset Management, revealed that he had shorted with Apple. In short, he’s betting on the sharp drop in Apple stocks. Hedge fund Scion Asset Management disclosed in a filing with the Securities and Exchange Commission that it held 206,000 put options on Apple stock as of the end of the first quarter.
Apple stock has fallen 21% since January. The iPhone maker also lost the honorary title of the world’s most valuable company to oil giant Saudi Aramco.
Burry will always be remembered as the man who predicted the collapse of the housing bubble, as well as the person who said the mortgage market was a huge and unsustainable house of cards.