Michael Burry warned the historic declines in stocks and cryptocurrencies this year could double in magnitude over the coming months.
“Adjusted for inflation, 2022 first half S&P 500 down 25-26%, and Nasdaq down 34-35%, Bitcoin down 64-65%,” he tweeted on Thursday. “That was multiple compression. Next up, earnings compression. So, maybe halfway there.”
Burry published his tweet after the benchmark S&P 500 index logged its steepest first-half slide since 1970, the tech-heavy Nasdaq index posted its worst first-half performance on record, and bitcoin suffered its worst quarterly slump in more than a decade.
The investor of “The Big Short” fame attributed those declines to investors slashing the valuation multiples they place on risky assets.
has started hiking interest rates in order to curb rampant inflation, making it more expensive to borrow, and more attractive to save or take advantage of higher Treasury yields. As a result, investors are willing to pay less for a potentially greater return from riskier assets than they were when interest rates were near zero.
Burry now expects corporate earnings to decline, dragging stocks even lower, as they’re typically priced on a multiple of company profits. In a November tweet, he pointed out that earnings plunged 91% between 2008 and 2009, when the housing bubble burst and the financial crisis began, and 73% between 1929 and 1932, when the Wall Street Crash occurred and the Great
The Scion Asset Management has been predicting a painful stock-market decline for a while. Hey suggested in May that the S&P 500 could plummet to 1,862 — a 51% drop from its current height — based on its performance in past bear markets.
Burry also warned in April that stock valuations had been stretched to unsustainable levels. “Nigh perched with a multiple problem,” he said about America’s largest public companies being valued at nearly double their revenue.
The hedge fund manager has been ringing the alarm on corporate earnings too. He’s noted that Americans are saving lessracking up credit-card debt, and are on track to virtually exhaust their savings by Christmas—likely reflecting the soaring costs of food, fuel, and housing.
Burry expects consumer spending to drop as a result, choking economic growth and eroding company profits later this year. Notably, he expects the slump in demand, coupled with retailers slashing prices to get rid of excess inventoryto cool inflation too.
The Scion chief shot to fame after calling the collapse of the mid-2000s housing bubble, unintentionally paving the way for the meme-stock boom by investing in GameStop, and taking short positions against Elon Musk’s Tesla and Cathie Wood’s flagship Ark fund last year.
He has previously diagnosed the run up in asset prices as the “Greatest Speculative Bubble of All Time in All Things,” and warned retail buyers of meme stocks and crypto they were facing “the mother of all crashes.”