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Are We About To Relive The Financial Crash of 2008?

relive financial crash
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EDITOR'S NOTE: A cryptic tweet by Michael Burry of “Big Short” fame triggered a bout of paranoia and panic among some investors: "As I said about 2008, it is like watching a plane crash. It hurts, it is not fun, and I'm not smiling." In short, it implies that we’re about to relive the financial crash of 2008, or something similar. And the Twitter debate begins, with some followers supporting Burry’s thesis, others attacking it, and many requesting clarification. You can see the responses in the article below. Given the current economic and geopolitical environment, Burry’s tweet isn’t all that far out. We’re either seeing multiple bubbles on the verge of a massive burst, or bubble fears are overblown. What matters is not the prediction but the hedging preparations should such a burst come sooner or later. We believe that hedges should always be in place to mitigate tail risk or to navigate changes in the economic cycle. It’s really just a matter of rebalancing your risk-on and risk-off assets. Our bias, of course, is that sound money should always have some allocation in a portfolio. And considering the market turmoil we’re currently facing amid rising inflation, it’s kind of difficult to argue the opposite, don’t you think?

The sad memories of the 2008 financial crisis resurfaced on the markets after a cryptic tweet from 'Big Short' legend Michael Burry.

Are we about to relive the financial crash of 2008? 

The question is begining to cross people's minds since a cryptic tweet on May 24 from iconic investor Michael Burry, known to be one of the first to bet against the subprime mortgages in the mid-2000s. Burry accurately predicted the collapse of the housing bubble. The hit movie 'Big Short', where his role is played by actor Christian Bale, depicts his incredible bet against the tide of a euphoric market.

'Plane Crash'

"As I said about 2008, it is like watching a plane crash," Burry posted on Twitter on May 24. "It hurts, it is not fun, and I'm not smiling."

He added no further messages, leaving Twitter users and investors to speculate. The confusion added to the nervousness.

The Nasdaq Composite fell 2.4%, while the S&P 500 slid 0.8%. The Dow rose by 0.2% in a late-day reversal, despite falling as much as 1.6% earlier in the session.

Investors are worried about an overheated economy and fear that a recession is on the horizon. They are currently panicking over every sign suggesting an economic slowdown. Such was the case on Tuesday, May 23, when social network Snap Inc  (SNAP) - Get Snap, Inc. Class A Report issued a profit warning on disruptions in supply chains, soaring prices and Russia's war in Ukraine making companies cautious about spending on digital advertising.

"2008 housing market responsible but 2022 what reasons???" a  Twitter user asked Burry.

"The massive amounts of monroe printing has created a bubble on every single asset. 2008 was nothing compared to what is coming. A home that should be valued at 500k is now 2.2M is insane. The us dollar as a currency is been destroyed," another user responded.

"Is everything a bubble ? or are Western Currencies overvalued ?" another user asked.

 

"Stop comparing this to 2008," another user tried to reassure others. "It’s nothing like 2008. I dare say we are in better conditions than in 08. Better connected and better prepared. Tech is on our side as well, news spreads faster. Sentiments can change in a blink of an eye in todays world. (No pun intended)."
 

Nervousness and Bad News

All of these messages show the panic and nervousness currently affecting investors. They are desperately looking for a glimmer of hope in a landscape completely weighed down by bad news. Almost all asset classes are affected, even cryptocurrencies including bitcoin, which was supposed to be a hedge against inflation.

The S&P 500 is in its seventh consecutive week of decline, its worst streak since 2001. Big Tech stocks such as Apple  (AAPL) - Get Apple Inc. Report, Microsoft  (MSFT) - Get Microsoft Corporation Report, Alphabet  (GOOGL) - Get Alphabet Inc. Class A Report, Amazon  (AMZN) - Get Amazon.com, Inc. Report, Tesla  (TSLA) - Get Tesla Inc Report, Facebook (Meta Platforms)  (FB) - Get Meta Platforms Inc. Class A Report or Nvidia  (NVDA) - Get NVIDIA Corporation Report are in decline despite solid fundamentals. Investors seem confident that companies will start announcing bad news soon. 

On the macroeconomic level, the housing market is cooling off:  sales of new homes had fallen, with high prices and a big increase in mortgages rates.

Market participants are also waiting anxiously for the latest reports on weekly mortgage applications and durable goods orders before markets open on May 25. Investors are expecting the latest meeting minutes from the Federal Open Market Committee.

Hours after his tweet, Burry deleted it and other posts. He is known to often delete his tweets after the fact.

On May 16,  Burry, who runs Scion Asset Management, revealed he shorted Apple. Basically, he is betting on the sharp drop in Apple stock. Hedge fund Scion Asset Management revealed in a filing with the Securities and Exchange Commission that it owned 206,000 put options on Apple shares as of the end of Q1. 

Apple stock is down 21% since January. The iPhone maker also lost the honorary title of the world's most valuable company to oil giant Saudi Aramco. 

Burry will always be remembered as the man who predicted the collapse of the housing bubble, and also as the person who said the mortgage market was a huge and unsustainable house of cards. 

Originally published on The Street.

 

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