'Big Short' investor Michael Burry issues a grim warning about runaway consumer debt - and says the stock-market rally won't last
- Michael Burry warned Americans are loading up on credit-card debt in response to inflation.
- Burry expects consumers to run out of cash within months, hitting company profits and the economy.
Michael Burry rang the alarm on ballooning consumer debt, and warned the current rebound in stocks is unlikely to last, in a pair of tweets this week.
"Net consumer credit balances are rising at record rates as consumers choose violence rather than cut back on spending in the face of inflation," Burry tweeted.
"Remember the savings glut problem?" he continued. "No more. Covid helicopter cash taught people to spend again, and it's addictive. Winter coming."
Burry used "choose violence" to mean causing trouble or sowing chaos, and "winter coming" to mean something terrible is going to happen. Both phrases were popularized by the TV adaptation of "Game of Thrones," a series of fantasy novels.
The investor of "The Big Short" fame attached a chart to his tweet, showing that US consumer credit is rising at $40 billion per month, well above its historical average of $28 billion.
Burry noted in May that American consumers - faced with surging food, fuel, and housing costs - were putting away less of their incomes, racking up credit-card debt, and poised to virtually exhaust their savings by the end of this year.
He predicted consumer spending would drop as a result, and retailers would cut prices to get rid of their bloated inventories, curbing inflation and heaping pressure on corporate earnings and economic growth by Christmas.
The Scion Asset Management chief's latest tweet suggests he sees Americans loading up on debt and tapping their savings to deal with higher prices, meaning consumer demand will eventually dry up, and asset prices and the economy to suffer.
The tweet also echoes his previous complaints that the government's aggressive stimulus efforts during the pandemic are responsible for excessive consumer spending.
A short-lived recovery
Burry ridiculed the idea that the Nasdaq Composite - which has rallied 21% from its mid-June low, but is still down 19% this year - is back in a bull market. He noted the tech-heavy stock index staged several recoveries of that scale after the dot-com bubble burst, before it finally found a bottom.
"Nasdaq a bull market because it is up 20% off its low? Who makes this stuff up?" Burry said in a now-deleted tweet. "After 2000, the Nasdaq did that 7 times as it fell 78% to its 2002 low."
Burry has previously noted that "dead cat bounces are the most epic," meaning that stocks often threaten to rebound during market downturns, but those rallies don't last.
The investor has asserted the pain for investors might not end until they swear off owning tech stocks, cryptocurrencies, and non-fungible tokens (NFTs). He probably doesn't expect that to happen soon, given he recently complained that market "silliness" is back after two newly listed stocks skyrocketed in value by thousands of percent in a matter of days.