Investor Michael Burry has taken a huge short against the U.S. stock market, to the tune of more than $1.6 billion.
Burry, who predicted the subprime mortgage crisis of the 2000s, bought nearly $890 million in puts against the SPDR S&P 500 ETF, which tracks the overall stock market. Through his hedge fund Scion Asset Management, he also bought some $740 million in puts against an ETF that tracks the Nasdaq’s 100 largest nonfinance companies — essentially, a short against the tech sector.
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The massive short positions were revealed on Monday in a filing with the Securities and Exchange Commission. More than 93% of Burry’s entire portfolio is betting against the stock market, and in essence, the health of the economy.
Burry’s investments are watched very closely, considering his success in predicting the housing market crash. At the time, many investors doubted his shorts and even tried to pull out their capital from his fund, but he ended up being right, yielding a nearly 500% return on investment from the time he founded Scion Capital in 2000 to 2008.
The story of Burry's successful short of the housing market was depicted in the 2015 hit film The Big Short, in which Christian Bale played Burry.
Some investors will see the latest bold move as a warning that the market might get slammed in the coming months as fears of a recession continue to percolate.
The Federal Reserve has been raising interest rates for 17 months now, at times at an extraordinarily aggressive degree. The rate hikes are designed to drive down inflation, but as higher rates trickle through the economy they squelch demand and can lead to a recession and a flagging labor market.
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While the labor market has exceeded the expectations of most economists and remained above water, recent jobs reports and other indicators show it is starting to weaken in response to the tightening.
While the stock market has expanded most of this year and the S&P 500 is up more than 17% since the start of 2023, the market has slowed this month and is down slightly since the start of August. The Nasdaq is down by some 2.5% this month.