Michael Burry caused a stir on twitter (and subsequently in the financial press) late last month when he tweeted (and quickly deleted) that he expected “the mother of all crashes” would soon “spell doom” for crypto.
While he’s gone quiet again on Twitter, on Thursday, Barron’s published an interview with the infamous Scion Asset Management founder (whose story was featured in “the Big Short”) where Burry shared his skepticism of the “meme stock” craze, including GameStop, a company whose shares he correctly identified as undervalued back in 2019 (though he sold his position shortly after the price started trending higher in late 2020, missing out on the late-January surge in the company’s shares).
Burry told Barron’s he sees “shades of 1999 and 2007” in the meme stock world, and worries they could end up hurting regular investors. However, he can’t say exactly when meme stocks will crash – he just knows they will.
“I don’t know when meme stocks such as this will crash, but we probably do not have to wait too long, as I believe the retail crowd is fully invested in this theme, and Wall Street has jumped on the coattails,” Burry told Barron’s via email. “We’re running out of new money available to jump on the bandwagon.”
Ultimately, retail traders might find themselves co-opted by institutions who have far more resources to spark “gamma squeezes” (when option buying forces dealers to hedge buy either buying or selling the underlying) that can manipulate the directionality of meme stocks. We’ve written (via SpotGamma) about the “gamma squeeze” dynamic playing out in shares of AMC.
“Momentum, social media are now part of the strategy for Wall Street, and they are in a better position than retail to participate, sniff out and start gamma squeezes in the options market,” Burry added, the latter part referring to heightened demand for shares driven by market makers rushing to hedge call options they sold—a phenomenon that likely juiced meme stock trading.
As we mentioned above, not only did Burry correctly predict that GameStop’s shares were undervalued, but Burry’s analysis formed the basis of the bull case articulated by Keith Gill, aka “RoaringKitty” and “DeepF*ckingValue” credited with sparking the GameStop phenomenon on with his posts on Wall Street Bets.
Burry even warned about the risks posed by aggressive short-sellers (even back then GME was one of the most heavily shorted stocks in the US market).
All things considered, we suspect Burry was pretty happy with the results of his GameStop call based on a rubric he shared with Barron’s.
“For me though, if I get within years on a thesis coming true, I’m happy,” he says. “Most people are focused on days, weeks or months.”
If nothing else, Burry managed to repeat the main accomplishment from his legendary housing-bubble call: he correctly ascertained that the general market sentiment surrounding GameStop was totally wrong.