Michael Burry’s Predictions…and why I am slowing down my DCA investing

Basically, I have been thinking much lately about my warchest level, and also the rate of my DCA (dollar cost averaging) investing to my stock portfolio (esp. my dividend portfolio). Although deep down I still want to grow my monthly/annual dividend amount; however it is also torn by the need to have a substantial warchest to take opportunity of market corrections or crashes.

Since the beginning of the year (2022) markets have been volatile (dropping) but in recent weeks (or month), there has been a slight rebound or sort in the markets. Personally, I was kind of anticipating further drops. For all we know it could be just another dead cat bounce.

Regardless, with my pay still not going higher much, and warchest not up to my comfort level, I have been delaying my DCAs (stretching them for longer periods – months perhaps).

This is actually not easy for me, as I am not the patient kind of guy (but guess have more or less become more patient over the years, probably due to the many painful and expensive lessons hahaha).

Percentage wise with my portfolio much larger than my warchest, I do not think I will ever reach the anti-fragile level (as often touted by Nassim Nicholas Taleb.

Let’s talk about the tweets and comments by Michael Burry.

Michael Burry (known from The Big Short) is currently predicting a huge stock market crash for 2022. In fact, he is predicting a crash on the scale of the dot com bubble and the Great Recession of 2008.

Michael Burry

I have great respect for Michael Burry, and consider him one of the greatest investors alive.

He is famous for predicting the 2007-2008 GFC. He is also infamously known for predicting too early. Still when news about him comes about, I will take notice.

Now fast forward to recent years. In 2021, with the unprecedented money printing (trillions of dollars) by the US Fed, he made the comments that we should all prepare for inflation.

Interestingly, his user name in the Twitter account is Cassandra. In ancient Greek mythology, Cassandra was a priestess who was able to predict the future but unable to convince others to act upon her prophecies.

At that point, he was the contrarian. During that period, the inflation rate was only at 1.7%. (and in fact lower than the Fed’s target).

Now fast forward to today, US inflation is at 9.1%. So yes.. he was early, but right (again).

Even Michael Burry himself admitted that he is habitually 1-2 years early on (predicting) literally everything. His comment on the ‘broken clock status’ is with reference to Elon Musk’s comments.

‘Big Short’ investor Michael Burry warns stocks will crash and rallies won’t last. Here’s a roundup of his recent tweets and what they mean. (read here)

On 3 May 2022, Michael tweeted: “The S&P 500 index has rebounded strongly from the pandemic crash in the spring of 2020, rising from a low of 2,192 points to 4,089 points as of Tuesday’s close. However, it could plummet by 54% to 1,862 points in the next few years.

Basically, he is saying the next market crash bottom will be 10 to 15% lower than the previous market crash bottom. So 15% lower than the March 2020 Covid low will take us to S&P 500 at 1,862. At the time of writing on 6 Aug 2022, the S&P 500 is at 4,120.

That is like another 55% drop (Ouch!).

S&P 500 Chart

Which will bring us to the historical norm of the Shiller PE ratio (at 16).

Now let’s take a pause and let it sink in. Think about our investment holdings, think about it being lower than the March 2020 lows, and how it is in relation to current levels…..

Yeah…It’s not pretty. Unless you are shorting the markets.

It is a bold prediction, which has met with many criticisms online (as always).
Especially as mentioned earlier, in recent weeks (month) we have seen the markets in general (and S&P 500 in particular) bounce back up a bit.

S&P 500 Chart

However, short-term “dead-cat” bounces (up) are quite typical during the long term downward trend. And Michael Burry has tweeted about this before.

Basically, he is saying we are in the early stages of a much bigger crash.

He also mentioned about the increasing low trading volume in recent times.

And although generally, the sentiments are bearish with the high inflation, looming recession, Russian- Ukraine war, the selling has not really started. Money is still flowing into the markets. Michael is predicting more selling volume in the next few years.

He showed the below 10 year S&P 500 charts. In white the run up of the S&P 500 today. In yellow, the run up to the dot-com bubble (2000). In green, the run up to the great depression (1930).
It is pretty scary how similar they are. Micheal seen this part of human nature numerous times.

I guess beyond this charts, it is really the underlying economy. With high and rising inflation and rising interest rates, consumers usually have less money to spend as money is used to service their debt.

And this will start a self-fulling downward spiral.

Basically, we can take clues from Amazon’s earning to see this slow down (esp. in retail).

Amazon: It’s No Longer The Fast Growing Behemoth (read here)

Well, since Michael is notoriously known for predicting too early (by 1 to 2 years), I do hope I have sufficient time to bulk up more on my warchest, while slowly (but still) building up my (dividend) portfolio.
On the other hand, I do not think I can completely just stop investing (in stocks) or liquidate my holdings and transfer all my income or cash to my bank account or SSB / money market funds.

Beside inferring from Michael Burry’s tweets, there are also many other thoughts on my mind, which I won’t go into details in this post (too long for one post).

I guess crashes are unavoidable, and no matter how much I prepare for it, I will never be really prepared.


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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat. Check out my Facebook Page: https://www.facebook.com/apenquotes.tte.9?ref=bookmarks
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4 Responses to Michael Burry’s Predictions…and why I am slowing down my DCA investing

  1. Sinkie says:

    I know Burry made billions in 2008, but he’s also lost millions from shorting from 2010 till 2021. I’m not sure if he would have made more from 2006 till today if he had just put his capital into a blend of S&P 500 & Nasdaq.

    He’s similar to a few market commentators & financial newsletter writers that I’ve followed since 2008. They’ve mentally become hammers … everywhere in the markets, they’re only looking for things to short (when you’re a hammer, every problem is a nail).

    There’s also this demographics cycle that not many people are talking about. Whereby a particular generation is larger than usual (they are borned during good times) & it helps generates consumption, jobs, spending, housing, businesses, and of course stocks. This demographics boom often lasts about 20 yrs. So you have the Greatest Generation & the 1950s-1960s bull, the Baby Boomers & the 1980s-1990s bull, and now we have the Millennials and the current bull which started from 2009. We can roughly call it the 2010s-2020s bull. During these secular bull periods, any bear markets or recessions tend to be shallower, around -35%.

    However there’s no guarantee it’ll last till 31 Dec 2029. So towards the last few years of this decade I’ll be moving my portfolio into a more stable 50:50 or even 40:60 allocation. I’m already a retiree so my approach may not be appropriate for someone with many decades of active work left.

    Oh and what about those secular bear periods in-between? They’re often tied to smaller generations borned during bad times. So we have the Silent Generation & 1970s bear, Gen X and the 2000s bear. The next one will be Gen Z and potential 2030s bear.

    Like

    • apenquotes says:

      That is an interesting perspective.
      I kind of sense that you lean towards a big crash in the late 2020s to the beginning of 2030.
      Didn’t know you have retired (occasionally will get comments from you).
      Well, when one is retired, the perspective kind of changes I guess, when there is no more active income.

      Like

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