Michael Burry thinks people in tech should start to worry.
Burry was made famous for being the central character in “The Big Short,” a current blockbuster based on the mortgage crisis of 2008.
Adapted from Michael Lewis’s best-selling book, The Big Short tells the true story of how Burry was one of only 20 people in the world to realize that the global mortgage was built on a shaky foundation and was on the verge of collapsing.
After liquidating his short positions after the crisis, Burry, who’s played by Christian Bale, made a personal profit of $100m. His firm, Scion Asset Management, made more than $700m.
While many financial experts think that we’ve learned from the mistakes made leading up to 2008 and have nothing to fear, Burry thinks that another financial crisis is near.
In a recent Q&A with New York Magazine, Burry said the following:
Well, we are right back at it: trying to stimulate growth through easy money. It hasn’t worked, but it’s the only tool the Fed’s got. Meanwhile, the Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy. We are building up terrific stresses in the system, and any fault lines there will certainly harm the outlook.
Burry’s weariness of easy money is a fear that’s being echoed in the tech community. Bill Gurley, a legendary venture capitalist from Benchmark recently said that “we’ve moved from everything’s rosy and we’re starting to see cracks. Historically, that’s led to a change. I’m of the belief there’s an 80% chance we’ve tipped and headed towards that stuff, but I can’t prove that.”
Of course, there are dozens of well-respected venture capitalists who say we have nothing to worry about, but when Burry predicted the downfall in 2008 the majority of the industry didn’t agree with him. At one point in 2007 his investors tried to revolt and pull their money from Burry’s fund. Thankfully for them, when it was all said and done Burry’s firm had returns of 489.34 compared to the S&P’s 2%.
Should we expect a Big Short 2 anytime soon? I sure hope not.
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