Famed “Big Short” investor Michael Burry is hitting the headlines once again after predicting “the mother of all crashes” on Twitter and providing an interview to Barron’s on his outlook for the market.
Burry is best known for foreseeing the subprime mortgage crisis and profiting from it. He is said to have made $750 million in profits for clients and $100 million personally.
Burry’s story is a feature in the book “The Big Short” by Michael Lewis. The book details how a group of investors, through research, discover how flawed the subprime mortgage market was, which prompted them to bet broadly against the US housing market.
This happened in the early 2000s when US housing was booming. Many people ended up with mortgages they couldn’t afford. Low interest rates encouraged banks to lend more generously and encouraged many borrowers to take on more debt than they could afford. The so-called subprime mortgages carried a low fixed rate of interest for the first two years, which then reset at much higher floating rates. It wasn’t long before many of those risk loans soured.
By the first quarter of 2007, defaults on subprime mortgages rose to a seven-year high. Many of these types of loans were bundled into complex derivatives that proved almost impossible to price when the mortgage market began to crumble. Banks, such as Bear Stearns and Lehman Brothers, were left with huge exposure to a lot of these instruments and couldn’t sell them. As defaults picked up, many of these products were rendered worthless.
“The Big Short” was later adapted into a movie in 2015.
Now Burry is once again warning investors about a market bubble saying “we probably don’t have to wait too long” for a crash.
However, Burry isn’t the only investor in “The Big Short” that was right about the housing market. Insider takes a look at where the other key players from “The Big Short” are now and what they are saying about the current market cycle.
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