Don't hate me for this wsb link:
https://www.reddit.com/r/wallstreet...y_father_burry_is_calling_the_big_short_20_i/
It's actually a really good breakdown on Burry's concerns with US monetary policy and its impact on inflation.
I'd give my own thoughts on this and how monetary easing distorted the market:
First, a bit of background. I did my undergrad in economics, so I have a basic understanding of Econ 101/102 (Micro/macro economics).
When I was fresh out of college (2006/07), here in Vancouver we were experiencing a huge boom in RE and the price just jumped seemingly non-stop with the average detached home topping 1M in price. My family has been investing in RE (the commercial side instead of residential) and we were always looking for opportunities.
From my understanding on real estate and economic theories as a whole, the whole market made no sense at all. At the time, we were seeing sub-3% cap rate on real estate, which one could do better by just put their money in a decent dividend portfolio. But it didn't matter and the price kept growing.
Then 2008 hit, at first I thought it was a great opportunity as the RE must go penny on the dollar right? WRONG! It went down a bit, and then just recovered and went on full steam again up until 2016 when new restrictions started taking place changing much of the demand side.
So, what was it? Was it that our economic books were wrong and Keynesian fundamentals were nonsense? Hardly. It's the variables that were overlooked. Never in the history of Canadian economics have we tried the unthinkable... dropping rates to near zero in order to pump the market at all cost. When the opportunity cost is so high (because borrowing cost is so low), the market acts accordingly. There would be different level of risk acceptance, but ultimately, we had a much lower overall risk when interest rate was near zero vs. the historical average of around 5% just prior to 2008.
So, I don't deny how Burry is seeing the market. It's fundamentally correct. But as they say... never try to time the market and NEVER EVER go against the Fed. During the 2008 crash, the Bank of Canada simply introduced policies after policies to pump the market. If one were to bet against the BoC or the Fed... how much money can a fund have? The largest funds have maybe a few trillion AUM in TOTAL. A few trillion is what a central bank manages on a yearly basis. And let's say if one were to bet that the Vancouver RE market is going DOWN right after the 2008 crash somehow, it wasn't until 2016 it started showing some cracks and deflated from there. That's 8 years. Fast forward to 2020, with the Covid stimulus and whatever, the RE seems to start booming again. And from the 2016 peak to 2020 low, one's probably looking at 30% decline through 4yrs?
In short, one can bet against the market. Sure. But with central banks so accustomed to pump the market at the slightest shock without hesitation, it's going to be difficult going forward for a major crash to happen. Yes, we carry a lot of debts... but during the good times, when Fed was making a killing (billions and billions every Q), no one said a thing.
For a major economic disaster to happen, we'd need to wait until debt is no longer serviceable. But the question is how long can that take? Japan is at over 200% debt to GDP ratio and heading higher. Which it has been accumulating for the last 3 decades or more. How long can investors in funds such the one managed by Burry let him have his way? A year or 2 maybe... but if by year 4 or 5, Burry's fund isn't making a major return (IIRC, he announced his short position when SP was in the 400s, so, he has accumulated some losses already along the way however he tried to cost average), I don't think investors are going to be too happy about it.
Ultimately, what funds care is their AUM. Without it, they are not able to carry out their plays. So, if past Tesla shorties are any indication, Burry might be in for a rough awakening.
