Does the SEC Believe Michael Burry is Too Hot for Public Consumption?
After Michael Burry of “The Big Short” fame promised to stop tweeting due to a visit from the SEC, it might be worthwhile finding out the cause of such sudden interest. What is hiding behind Burry’s deleted tweets?
MMT as the Last Grasp Before the Fall?
There is no shortage of public and internet personalities who have not warned of the “upcoming collapse”. The problem is, they have been doing it for too long without spotting specific mechanisms of the demise. Ron Paul’s libertarian movement popularized such sentiment the most, spawning countless “IT’S HAPPENING” memes.
Without exception, they all rail against the Modern Monetary Theory (MMT), the prevailing economic paradigm of most governmental officials for at least two decades. This model implies that it is foolish to equate the business of the nation with the mundane business. The latter cannot generate its own currency like the former can because it is not a monopolistic entity.
Therefore, a nation in control of its currency doesn’t have to place special attention on deficits as long as there is no runaway inflation. Within such framing, debt is untaxed, recirculated money. Without getting into a number of problems with MMT, and how it is perceived by individual officials, the Federal Reserve is effectively implementing such an approach, demonstrated by the record-high money supply increase.
In the most recent FOMC meeting, Fed Chairman Jerome Powell all but entrenched an MMT policy – increasing the money supply by buying $120 billion in bonds every month. This would go on until low employment is reached. In MMT, unemployment serves as an indicator that currency monopoly is restricting the money supply.
Predictive Credibility of the Messenger
Michael Burry, played by Christian Bale in “The Big Short”, has more credibility than most when it comes to spotting bubbles and predicting doom. As a head of now-closed Scion Capital, Michael Burry is quite an exceptional hedge fund manager. If you have seen the movie, you may remember this line.
“Greenspan is wrong.”
Referring to the former, five-term Fed Chair Alan Greenspan. After uttering the famous line, Christian Bale then proceeds to bet against the housing market, portraying the path that gained Michael Burry his legendary investment status.
“I look for value wherever it can be found and the fact is that these mortgage-backed securities are filled with extremely risky sub-prime adjustable-rate loans. And when the majority of these adjustable rates kick in, in 07, they will begin to fail. And if they fail above 15%, the whole bond is worthless”
However, it is one thing to spot a bubble, but another to profit from it. To make this possible, Burry had the bank create a new financial instrument to serve as a shorting vehicle – credit default swap. All based on the prediction that housing prices will plunge, which eventually happened in 2007, birthing the Occupy Wall Street Movement.
Ultimately, by betting against the prevailing sentiment, Michael Burry personally made $100 million and $750 million for his investors. Now, as the head of Scion Asset Management, Burry made quite a Twitter commotion by comparing the current United States with Weimar Germany, just before it entered catastrophic hyperinflation, which eventually led to WWII.
The SEC Visits Michael Burry
After his warnings about the impending collapse of the economy, Burry had been visited by the SEC regulatory agency officials. That was one of his last tweets before deleting them all and placed a picture of a pile of bricks as his Twitter profile header.
Burry isn’t the only individual following this line of thought. Michael Saylor of MicroStrategy bases his investment strategy on the Fed’s devaluation of the dollar.
When it comes to the rise of Bitcoin, Burry is also worried how it might be treated by institutional power brokers.
From the early stages of prison-style lockdowns, many warned about their dire economic and social consequences, generating a predictable outcome. The reports on the deadliness of lockdowns are still coming in, with the latest one from the UN reporting that the policy killed close to a quarter of a million children in South Asia (0.002% mortality rate under 10). It seems that Burry too caught on to the seemingly endless reports on the lockdown fallout.
While each of these subjects might cause frowning from certain circles, Burry’s insistence on the coming stock market crash seems to be the most relevant to stir the ire of federal agencies. This one speaks directly to the potential effect of stimulus checks to grind MMT gears to a halt. While quantitative easing (QE) may get trapped in the real asset market, continued direct payments don’t have a curtailing effect on inflation.
In an already volatile and fragile financial system based on confidence and perception, such claims may have an accelerating effect. In the end, there is too much momentum in the system to stop whatever is bound to (not) occur. Only time will tell if, in a decade, we might see another movie with Burry played by another actor and a slightly tweaked but familiar phrase:
“Powell is wrong.”
What are your thoughts on Michael Burry’s visit by the SEC? Let us know in the comments below.