Maverick Wall Street investor Micheal Burry expects the US stock market to crash in the coming months, a bet that goes against the current bullish trend.
According to Burry, who famously called the 2008 subprime mortgage crisis and the resultant global financial crisis, has made a $1.6 billion bet against Wall Street. Burry's firm Scion Asset Management has placed massive bets against funds that track S&P 500 and Nasdaq 100 stock indices.
Scion Asset Management
While Scion Asset Management has bought $866 million in put options against a fund that tracks the S&P 500, a similar bet of $739 million has been made against another fund that tracks the Nasdaq 100.
Investors who make put options have the right to sell shares at a fixed price in the future, meaning that they make a profit when the shares fall. Investopedia explains: "Put options increase in value as the underlying asset falls in price, as volatility of the underlying asset price increases, and as interest rates decline. Put options lose value as the underlying asset increases in price, as volatility of the underlying asset price decreases, as interest rates rise, and as the time to expiration nears."
What's Burry's Call?
The US stock markets saw a rare rally in recent months, fuelled by the bullish sentiments over AI's impact on businesses and profits. While the S&P 500 is up by around 15 percent in the year, the Nasdaq 100 has zoomed 37 percent so far this year. However, Burry believes that the market is in for a shock soon.
One of the striking features of the Wall Street rally has been the focus on technology companies. Most of the gains this year, especially on the Nasdaq, were fueled by a handful of mega technology companies. A recent Societe Generale analysis found that if some 20 stocks whose ownership is tied to AI-related exchange-traded funds were removed from S&P500, the index would report a 40 percent drop this year.
Who is Micheal Burry?
Burry has been active on the Wall street since the early 2000s and he made a name by placing big bets against the US housing market. The call against the housing bubble made handsome returns to his investors, and he made a big name for calling the 2008 financial crisis in advance.
Burry has a medical degree and is a registered doctor in California but he does not practise. His outlandish investment tactics became the theme for Michael Lewis' book The Big Short. The book was later made into a film by the same name, in which his character was portrayed by Christian Bale.
