Michael Burry: The 'Greatest Bubble of All Time' Just Burst (recent tweets explained)

The quote "greatest bubble of all time has started to burst, and it's not done yet," according to Michael Burry. Burry made his name correctly predicting the crash of the US housing market during the lead-up to the global financial crisis. This crash was devastating for millions of people across the globe, causing lost jobs, foreclosed houses, and skyrocketing unemployment. Workers who kept their jobs saw their retirement and pension accounts get cut in half virtually overnight as the stock market fell. The effects of this crash that Burry successfully predicted are still having repercussions to this very day.

That's why it got my attention when I saw Michael Burry's most recent tweets, and it should also be getting yours. In this video, I'm going to examine Burry's tweets over the past year to see if there's any merit to what he's been saying or if Burry is just being what Elon Musk called a "broken clock." Towards the end of the video, I'm also going to provide some tangible advice on how you can protect yourself and your investment portfolio in the event of a crash. You're going to want to make sure to stick around to hear that because it could save you a lot of money.

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To kick off our timeline, we have to go back to last year when Burry tweeted, "People always ask me, what is going on in markets? It is simple: greatest speculative bubble of all time in all things by two orders of magnitude #flyingpigs360." This is a bold statement to make, as there have been some pretty spectacular bubbles: the stock market bubble that burst in 1929 that contributed to the Great Depression, the so-called Nifty 50 stocks of the 1970s that traded at PE ratios in the hundreds, and the dot-com bubble of the late 1990s and early 2000s that saw internet companies with literal zero revenue trade for billions of dollars.

And then we have the housing bubble in the 2000s, for which Burry made his name and knows very well. That's why it took me by surprise when Burry called what's happening currently the greatest bubble of all time. Staying up to speed on what's happening in the stock market and broader economy is essential for my YouTube channel; however, the traditional news can often be overwhelming. That's why I read Morning Brew, the sponsor of today's video, to start my day.

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In order to put this tweet into context, it's important to understand when Michael Burry made this tweet. This tweet was made in June 2021 during an absolutely crazy time in the markets. Crypto prices had skyrocketed; Bitcoin had just gone up by over a factor of six from around $9,000 in June of 2020 to over $60,000 in March of 2021. And Bitcoin wasn't the only cryptocurrency that was skyrocketing.

Cryptocurrencies besides Bitcoin, commonly referred to as altcoins, were about to see even crazier price movements. Some of these altcoins that were previously unheard of skyrocketed by 100 times or even 1,000 times. Many of these cryptocurrencies were nothing more than gambling instruments as opposed to long-term fundamental investments. This speculation wasn't just limited to crypto; it made its way into the stock market as well. The biggest example of this probably being the meme stock bubble led by companies like AMC, Blackberry, and the king of all meme stocks, GameStop.

Interesting fact: Michael Burry actually was an investor in GameStop dating back to 2019 when his investment firm purchased 3 million shares of the failing video game retailer at around $5 per share. Shares of GameStop peaked at around $325 in early 2021. This speculative bubble in the stock market went beyond just the so-called meme stocks. Even some very prominent and successful companies saw their stock prices shoot up to completely unreasonable levels.

E-commerce company Shopify saw its stock peak at $170 per share in 2021, a far cry from the $35 per share it trades at now. Online used vehicle retailer Carvana saw its stock price peak at over $360 per share, only to see the stock come back down to earth. It currently trades at $25 per share. Online video conferencing software provider Zoom is yet another example. Zoom's stock peaked at $550 per share, only to come crashing back down to the $120 per share it trades at currently.

Burry also had another tweet last year that said, "All hype & speculation is doing is drawing in retail before the mother of all crashes. #fomo parabolas don't resolve sideways when crypto falls from trillions or meme stocks fall from tens of billions. #MainStreet losses will approach the size of countries." What Burry is saying here is that when asset prices are in a bubble, the decline down is never gradual. Just as quickly as the price goes up and people are making money, prices can fall and money can be lost with the same velocity, just in the opposite direction.

Look at Virgin Galactic Holding stock as an example of this. This company is attempting to commercialize space flight. I would make the argument that, given the nature of the business it operates in, this stock is highly speculative due to the fact that the company is not yet making any money. Instead, investors are hoping the company will be able to successfully commercialize space flight sometime in the future, a scenario that's far from guaranteed.

This stock went from around $16 per share to over $55 per share in just a matter of months. However, it didn't take long for investors to lose those gains. Within just a matter of months, the stock was back down to $16 per share, wiping out all investors' gains. The stock has gone on to more than cut in half from there, currently trading at around $7 per share. And the people that are losing money in these stocks aren't really the big Wall Street firms; it's the individual retail traders.

Burry referred to predicting the economy or when a bubble will burst as insanely hard. With that being said, it does appear that Michael Burry has been spot-on regarding these specific tweets from last year based on the decline we have seen over the past year in various asset prices. It surely looks like some air has been let out of that massive bubble Burry was referring to. However, Burry hasn't just claimed victory and ridden off into the sunset; he has continued to tweet, sharing his thoughts on the, let's just say, interesting situation we are currently seeing in the markets.

So I want to spend the rest of this video going through his more recent tweets because they can definitely have implications for us as investors moving forward. As a sneak peek, let's just say Burry doesn't believe the bursting of the bubble is over yet. Just a quick shameless plug: if you are enjoying this breakdown, make sure to like this video and subscribe to the channel because it's my goal to make you a better investor by studying the world's greatest investors.

On June 13th, 2022, Burry tweeted, "The theater took more than a decade to overstuff, not likely everyone gets out in less than a year." In this tweet, Burry is referencing the popular analogy of comparing a stock market crash to people trying to exit a movie theater that's on fire and only has one exit. Let's say there is a movie theater that has a capacity for 300 people but is filled over capacity with 500 people. If a fire were to start and everyone rushed for the exit at the same time, the results would be devastating because people would trip over each other to try to be the first to reach the exit.

This is very similar to how the stock market works. Imagine there is a very speculative stock that saw investors rush into the name when times were good. As more investors rush in, the price continues to rise, and as the price continues to rise, more investors rush in. This cycle repeats over and over again, sending the stock price to higher highs. This can happen for years as the bubble continues to grow. But when the bubble in that particular stock bursts, the inverse happens.

As the first investors start to leave, it sends the price down, causing even more investors to leave. That sends the price down even further, causing even more investors to leave. The reason this happens is that most of the people that bought into the stock don't really know why they bought it besides the fact that they saw their friends or people online making money. Just like a movie theater that has too many people in it, everyone rushes to the exit at the same time, causing the price of that asset to crater. However, it takes time for everyone to fully exit.

This is what Burry is referencing in his tweet when he says that not everyone gets out in less than a year. This is why I spent the first half of the video setting the stage about what has happened over the past year in terms of prices for stocks and crypto declining because everyone's not yet out of the proverbial theater that's on fire. Burry believes prices for these speculative assets have further to fall.

Since the global financial crisis ended, there has been an over 10-year long bull market in all asset prices: stocks, real estate, and cryptocurrency. Just look at the S&P 500 over the past decade or so. The S&P bottomed near 750 in March of 2009. It then went through arguably the best period of price appreciation in the history of the market, for over the next 10 years topping out at 4700 in December of 2021. The stock market in the United States went up by more than a factor of six in just 12 years.

Burry is saying that a bubble that took over a decade to form won't be fully corrected in just a year. So the decline in prices we have seen over the past year or so is just the start of this crash. One of the reasons investors are worried about the health of the United States economy has to do with the high levels of inflation it is experiencing. Inflation is at the highest level in decades and is the biggest worry across the globe. Here's what Burry had to say about it: "transitory? No. Peak? No. To the moon? If you mean a cold dark place."

The CPI news this morning was so awful that it changed the board market's view of Fed trajectory, and the weakest sector broke in bond jargon. MBS went no bid, no buyers for MBS. Now, there is a ton of technical language in that tweet, but just know that this is Michael Burry's way of saying, "I told you so" to the Federal Reserve. This was the day the most recent inflation data was released for the month of May, and it was yet another record inflation rate.

The year-over-year inflation rate for March of this year was 8.5%. The April rate was 8.3%. This made investors hopeful that the inflation rate was finally starting to slow down; however, this was not the case. The May inflation rate was 8.6%. This completely shattered the narrative that inflation had "peaked."

So it's no secret that people are worried about the possibility of a recession and a further decline in the stock market and real estate. Are we headed for that in the future? Maybe. But at the end of the day, even if you're Michael Burry, nobody knows for certain what the future holds. However, with that being said, I do want to end this video talking about some tangible steps you can take to help prepare if you're worried about the economy or the possibility of a crash.

The first step you want to take is to limit your debts and make sure you can comfortably cover all debts you have. This can include debts such as credit card debt, car payments, and student loans. The labor market is still very strong, and now is the time to take advantage of that. The unemployment rate is still hovering around all-time lows, and there's still an estimated two jobs open for every one unemployed person. Warren Buffett always talks about how his company has what he refers to as a "fortress balance sheet," meaning Berkshire has a ton of cash and other assets relative to the amount of debt they have.

Now is the time to make sure your own personal balance sheet is strong. If over the next 6 months or so you're able to pay off your car note and get rid of that $500 monthly car payment, that will give you a lot more breathing room in your budget if the economy does slow down significantly. Additionally, if you are no longer paying as much in interest payments because you have reduced your debts, that is more money you can invest.

In the scenario where the stock market falls significantly, there's an old saying that recessions make millionaires. What that really means is if you are in a good place financially when a recession hits and asset values fall, you could actually use that to your advantage to buy up stocks at low prices.

The second piece of advice is to consistently underspend your income. Now you may be saying, "Duh, that's so simple." Well, you are 100% correct; it is simple, yet so many people don't do it. Billionaire investor Charlie Munger says that underspending your income is one of the keys to a successful life. He even goes as far as to say that consistently overspending your income is a sure path to misery. If you want to learn more about Charlie Munger's wealth building principles on how to get your first $100,000, you can check out the video here.

This is good advice to follow whether the economy is booming or in a recession. The math behind this is simple. Let's say someone is consistently spending only 70% of their income. During normal times in the economy, they are living below their means, driving a car and living in a house or an apartment that is below what they could afford if they spent 100% of their income. Let's say the economy enters a slowdown and this person has their wages reduced by around 30%. This person will be fine because they consistently lived below their means. Even when their income is reduced by 30%, it still covers their living expenses.

One of the keys to successful investing is the concept of margin of safety. Make sure you have a margin of safety in your budget. Keep a healthy difference between your income and expenses during normal times so when things do inevitably go bad, you will be fine. And then finally, make sure you have what is referred to as an emergency fund. This is a savings account worth 3 to 6 months of your living expenses that can support your lifestyle in the event of a job loss or something along those lines. Think of this as a type of insurance policy. It prevents you from having to sell your stocks or potentially your house in the event of a downturn at fire sale prices.

So there we have it. Make sure to like this video and subscribe to the Investor Center if you aren't already because my goal is to help you learn about investing and what's going on in the market. Thanks for watching and looking forward to speaking again soon.