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  4. 'Big Short' investor Michael Burry called out the Fed for not shrinking its balance sheet enough in June — and compared its love of stimulus to a drug addiction

'Big Short' investor Michael Burry called out the Fed for not shrinking its balance sheet enough in June — and compared its love of stimulus to a drug addiction

Theron Mohamed   

'Big Short' investor Michael Burry called out the Fed for not shrinking its balance sheet enough in June — and compared its love of stimulus to a drug addiction
  • Michael Burry slammed the Federal Reserve for not shrinking its balance sheet enough in June.
  • The central bank got rid of fewer Treasuries than anticipated, and added mortgage-backed securities.

Michael Burry called out the Federal Reserve for not shrinking its balance sheet as much as planned in June, comparing its failure to resist stimulating the economy to a drug addiction.

"Drugs are hard to kick," Burry said in a now-deleted tweet. "Fed was supposed to sell $30B Treasuries and $17.5B Mortgage-Backed Securities per month starting June 1. QT."

"During June, MBS holdings rose almost $3B. Treasury holdings fell less than $10B," the investor of "The Big Short" fame added.

Burry's tweet refers to the Fed's plan to reduce security holdings by up to $30 billion worth of Treasuries and $17.5 billion worth of mortgage-backed securities each month, with deeper cuts to follow. However, the central bank managed less than one-third of its Treasuries target in June, and actually added $3 billion of mortgage-backed securities to its stockpile.

Fed Chair Jerome Powell and his colleagues recently started hiking interest rates and reducing its balance sheet in order to curb rampant inflation, but at least in Burry's view, their quantitative tightening (QT) has fallen short so far.

Burry has heaped criticism on the Fed in recent months. In June, he blasted the central bank for being ignorant of history, given it had seemingly overlooked the risk that aggressively stimulating the economy during the pandemic would spark inflation.

In April, the Scion Asset Management boss claimed the Fed wasn't interested in curbing inflation; it was tightening to give itself room to cut rates and expand its balance sheet if equities and consumer spending collapsed.

"The Fed's all about reloading the monetary bazooka," Burry tweeted at the time. "Serial half-point hikes are for getting elevation before stocks and the consumer tap out. Same with rapid-fire QT."

Most damningly, Burry warned in September that investors have lost all faith in the Fed. He cited its mishandling of the global financial crisis, its decision to slash rates three times when the economy was booming in 2019, and reports that two of its regional presidents had traded individual stocks and other securities in 2020.

"Bond & stock markets depend on a Fed stripped of all credibility," he wrote.

Burry shot to fame after his billion-dollar bet against the mid-2000s housing bubble was chronicled in the book and the movie, "The Big Short." He's also known for his dire predictions of bubbles bursting and markets crashing, his investment in GameStop before the meme-stock craze took off, and his wagers against Elon Musk's Tesla and Cathie Wood's flagship Ark fund last year.

Read more: Recession-proof investing: BlackRock equities chief reveals the 3 stock market sectors investors should target and a key theme the firm is focusing on as interest rates spike

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