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“Sell.” The one-word warning from the legendary investor Michael Burry who foresaw the previous crash

Winnie Kimeu

Writer, News

Feb 2, 2023 at 08:15

Michael Burry, the man known for his astute financial insights, seemed to express his skepticism towards the crypto market’s great start to the year with a succinct tweet. On January 31, 2023, he simply declared, “Sell.” Burry went ahead and deleted his Twitter account after the post.

The fund manager behind “The Big Short” fame seemingly whispered a warning to investors, cautioning them not to fall for the stock market’s latest trickery. 

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S&P 500 INDEXSP: .INX. Source: Google Finance
S&P 500 INDEXSP: .INX. Source: Google Finance

The S&P 500 saw a 6.2% increase in January.

Nasdaq Composite INDEXNASDAQ: .IXIC. Source Google Finance
Nasdaq Composite INDEXNASDAQ: .IXIC. Source Google Finance

On the other hand, the tech-savvy Nasdaq Composite outdid itself, skyrocketing 11%, its finest January showing since 2001.

Not a fan of Elon Musk

Last year’s most battered stocks have surged to the forefront, particularly Elon Musk’s Tesla, which posted a 41% increase in January, securing its place as the S&P 500’s runner-up for top performing stock.

Cathie Wood and Elon Musk
Cathie Wood and Elon Musk

Meanwhile, Cathie Wood’s flagship Ark Innovation Fund experienced its most triumphant month yet. However, Michael Burry’s Scion Asset Management fund had a different approach, placing bets against both Tesla and the tech-focused Ark fund.

Additionally, he publicly expressed his disagreements with both Musk and Wood through social media posts.

Fed rates have a role to play

Investors have gone from embracing to abandoning tech stocks in response to the Federal Reserve’s reaction to a surge in inflation.

Fed Rate since December 2008 is the upper limit of the federal funds target range. Source: Federal Reserve
Fed Rate since December 2008 is the upper limit of the federal funds target range. Source: Federal Reserve

Years ago, the Fed jacked up interest rates from rock bottom to over 4% in an effort to slow down inflation. Now, investors are jumping back into tech stocks as they sense inflation is losing steam.

Furthermore, they anticipate the Fed will shift gears, cutting rates and igniting demand, ultimately propelling the US economy out of a downturn.

Burry’s grim predictions

Michael Burry has been a vocal skeptic of the stock market’s upward trajectory this year. On January 23, 2023, he took to social media to share a graph displaying the S&P 500’s drop during the dot-com bubble burst.

Moreover, he highlighted in red the brief rally from September 2001 to March 2002 before the market plummeted again.

With this comparison, Burry subtly hinted that the S&P 500’s 17% increase since last October’s low point might not be sustainable in the long run.

For over two years, Burry has been sounding the warning siren on skyrocketing asset prices. Plus, he has been prophesying an impending economic catastrophe since the early part of 2022.

Another dot-com crash

Over and above that, Burry diagnosed the largest speculative bubble in history, spanning across all sectors. He foresaw the mother of all market crashes in the summer of 2021, heeding his own prophecy by liquidating all but one of his US stock holdings in the second quarter of that year.

Dot com crashh of 2021
Dot-com crash of 2021

Burry is among the leading market commentators steeling themselves for a major financial disaster. 

Jeremy Grantham of GMO recently predicted that the S&P 500 could suffer a 50% decline in a bleak scenario, while Mark Spitznagel of Universa Investments warned of the largest ticking time bomb in financial history.

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