Michael Burry piles on bearish wagers is somewhat of a mystery as the central bank tightening cycle is nearing maturity.
Speculators, market players, and monetary policymakers know that further tightening could blow the collateral chain off the multi-trillion dollar treasury market.
Underestimating the maturity risk of holding what was perceived the safest of all paper assets, US treasuries have already bankrupted three banks
US treasuries are considered a haven asset perceived as being so low-risk. Commercial banks pledged treasuries to each other as collateral for loans.
“Underestimating the maturity risk of holding what was perceived the safest of all paper assets, US treasuries have already bankrupted three banks”
WEALTH TRAINING COMPANY
The treasury market is the pillar supporting the paper Empire
So widely held beliefs prevailed for generations that the dollar is king, the US government can never go broke, and the Fed, which owns the copyright of the most valuable brand in the world, can print as many dollars into existence to bankroll the federal government.
All that was true, particularly in a unilateral world with the US as the hegemon making all the rules, controlling the trade routes, sanctioning and cutting off rivals from the SWIFT payment system and bankrupting and even bombing challengers to the throne into submission.
So the US kept going into debt, and it was marketed and sold to the world as treasuries, and the world bought it because there was no alternative.
There is even a financial acronym for the above, TINA (There is no alternative).
In this US-centric world, global demand for treasuries always exceeded its supply, which kept treasury yields low.
After nearly a decade of the greatest monetary easing experiment in the history of finance to stimulate the economy, the fallacy of permanently low-interest rates was genuinely believed by the most conservative investors.
“the US kept going into debt”
WEALTH TRAINING COMPANY
The greatest opportunity to build the backbone of the economy, to rebuild a manufacturing industry when the capital was cheap, was instead squandered on blowing speculative bubbles in the FIRE economy.
China was the global factory, US’s sweatshop where a corporation could outsource production, reduce costs, profits grew and shareholders were ecstatic. China’s massive trade surplus was recycled, as China became the largest buyer of US treasuries, which kept yields low, and the banks were busy making cheap loans to households. The US deindustrialized as the households and the public deficit went deeper into debt to buy made-in-China goods and pay social security benefits for US underemployed workers.
But China became more ambitious, tired of being the world’s sweatshop, and wanted to move up the human food chain. Exchanging tangible goods for paper backed by the trust of the US government was no longer appealing to China.
“monetary policymakers will pretend that inflation has gone away and declare victory as the world enters its most dangerous period”
– Wealth Training Company
As global demand for US treasuries declined, the Empire’s foreign policy became more hawkish, with decades of wars based on fake claims.
Sadan’s Iraq had no nuclear weapons, and Assad’s Syria chemical attacks are questionable. Why was Lybia’s leader Gaddafi assassinated, beaten to death by Western-backed rebels?
Most recently, IEA rebuts Ukraine’s claim that Russia placed explosives at Zaporizhzhia nuclear power plant, Europe’s largest nuclear power plant, the latest fiction to justify war with Russia, in WW3.
If you understand the above, you have figured out why WW3 is likely to be officially declared soon. The Emperor of debt sits on the throne unhinged, itchy fingers on the tricker, looking for the next fight, new resource-rich territories to pillage, plunder and loot.
Taking this full cycle; what does this have to do with Michael Burry’s piles on bearish wagers?
Typically the best time to buy risk assets is during the last rate hike of the Fed’s tightening cycle.
The Fed cannot keep hiking rates without blowing the collateral chains off the Western banking system.
So monetary policymakers will pretend that inflation has gone away and declare victory as the world enters its most dangerous period.
The Fed will keep buying treasuries to suppress yields as hyperinflation festers with the world at war.
So Michael Burry Loads Up On $1.6BN Notional Worth Of S&P, Nasdaq Puts.
But the best time to buy deep discounts in growth companies is when the Fed’s tightening cycle reaches a trough.
“stocks typically perform well in times of war”
– Wealth Training Company
What does Michael Burry, the great short speculator, see through his optics?
Maybe Michael Burry may not be watching the Fed’s credit cycle and sees a greater cycle, the world order cycle. Maybe he too sees calamity dead ahead.
But stocks typically perform well in times of war, since war magnifies government spending, which results in increased earnings string of companies.
Soldiers need clothes, footwear, and machines need parts, servicing and energy.
But Michael Burry has liquidated the bulk of his Q1 holdings, liquidating not only his previous top two positions, JD.com and Alibaba but also another 13 names of the 21 names that made up Burry’s Q1 holdings, among which were Zoom, Sibanye, Coherent, energy names such as Coterra, NOV and Devon, as well as all the banks he had acquired during the March crisis including Capital One, Wells Fargo, Western Alliance, Pacwest, and First Republic.
Michael Burry piles on bearish wagers; what is the breakdown?
Burry owned two 2 million notional-equivalent blocks of SPY puts (for a notional-equivalent value of $887 million) and QQQ puts (a $739 million notional equivalent).
In total, Burry owns puts on both the S&P and Nasdaq 100 for a notional equivalent of $1.625 billion.
But Michael Burry’s bearish wagers are deeply underwater, bearing in mind the S&P and Nasdaq are trading high above where they were on June 30.
The VIX continues to bounce off its lows at near 16.
So does Michael Burry know something that we don’t?
