'Big Short' investor Michael Burry warns inflation will soar even higher — and flags mounting pressure on the housing market
- Michael Burry used retail investors' rallying cry to issue a dire warning about inflation.
- "The Big Short" investor predicted prices would continue rising to painful levels.
Michael Burry twisted the rallying cry of meme-stock and cryptocurrency fans to issue a grim warning about inflation on Saturday.
"Transitory, no. Peak, no. To the moon? If you mean a cold dark place," the investor of "The Big Short" fame said in a since-deleted tweet.
Retail investors and promoters have fanned hype around stocks such as Tesla and GameStop, and tokens including bitcoin and dogecoin, by proclaiming on social media that their prices are headed "to the moon," and adding rocket emojis to underline their enthusiasm.
Burry was clearly nodding to the popular expression in his tweet, but repurposed it to caution that inflation will climb higher, squeezing consumers and weighing on asset prices and economic growth.
The Scion Asset Management boss quoted from a recent blog post by Lou Barnes, a senior loan officer at Cherry Creek Mortgage, in his tweet. The quote highlighted the latest US inflation figure of 8.6% for May — a 41-year high — and said that estimate has wiped out demand for mortgage-backed securities.
In his blog post, Barnes noted the inflation surprise raised the fixed interest rate on low-fee, 30-year mortgages to 6%, or double its level at the start of this year. He ranked that jump among the five most-painful moments of his 44 years in the mortgage industry, along with spikes in mortgage rates in the late 1970s and when the dot-com and housing bubbles collapsed.
Barnes also asserted stocks would be "down a hell of a lot more" if investors fully appreciated the fallout from the housing market grinding to a halt. He blamed the current inflation crisis on Russia's ongoing invasion of Ukraine, which has disrupted energy production and transportation, and lit a fire under fossil-fuel prices.
Burry famously bet against mortgage-backed securities during the mid-2000s housing bubble, as he realized they were being priced as extremely safe despite being linked to mortgages at high risk of default. His billion-dollar wager was immortalized in the book and the movie "The Big Short."
He has repeatedly warned about asset prices, inflation, and the US economy in recent weeks. "As I said about 2008, it is like watching a plane crash," he said in late May as stocks tumbled and house sales slowed.
Burry also cautioned the US dollar is far weaker than it appears, because inflation is eroding its buying power. "We all see it every single day in prices of everything," he said.
Moreover, the hedge-fund manager noted that Americans are saving less, borrowing more, and burning through the cash they stashed during the pandemic. He argued the US economy is on borrowed time as a result, as consumer spending will plunge once household savings run out, hammering corporate profits and economic growth.
"Looming: a consumer recession and more earnings trouble," Burry tweeted.
The investor sounded the alarm on the "greatest speculative bubble of all time in all things" in June 2021, and warned buyers of meme stocks and cryptocurrencies were headed for the "mother of all crashes."
