Michael Burry has been finding opportunities in farmland, gold, and small technology firms. Mr. Burry, who closed his Scion Capital hedge fund in 2008, is now managing his personal investments and looking for opportunities that are not correlated with moves in the overall market. Michael Lewis profiled Mr. Burry and several other investors in The Big Short, a book covering the sub-prime mortgage lending bubble. Click on this link for a review of The Big Short.
From Mr. Burry’s selection of investments, it seems like he is not buying into the case for deflation. In an interview with Bloomberg, he had the following to say about the Federal Reserve:
Gold is also a favored investment as central banks issue debt and devalue their currencies, he said. Governments haven’t adequately addressed the causes of the financial crisis and may be sowing the seeds for future problems by borrowing, he said. In the U.S., lawmakers showed they didn’t understand how to prevent another crisis when they gave the Federal Reserve and Chairman Ben S. Bernanke additional authority, he said.
“The Federal Reserve, in my view, hadn’t seen this coming and in some ways, possibly contributed to the crisis,” he said. “Now, Bernanke is the most powerful Fed chairman in history. I’m not sure that’s the right response. The result tends to tell me they’re not getting it right.”
Mr. Burry also has a skeptical view of the notion that Wall Street banks act in the best interest of clients. This is unsurprising based on his experiences during the subprime bubble:
“I don’t believe that any Wall Street bank always acts in the best interests of its clients,” said Burry, adding that he often fought with firms while betting against housing. “It’s an incredibly vicious, incredibly competitive world when you’re going to go take a position opposite one of those banks.”
Investors and policymakers would be well served by listening to individuals like Michael Burry who had the foresight to see the problems building in the economy during the formation of the bubble. The idea that Mr. Burry and others were simply lucky or “statistical illusions” as suggested by Former Federal Reserve Chairman Alan Greenspan will only increase the probability that future warnings will be ignored as well.
Mr. Burry published a primer on the sub-prime situation in November 2006 in a futile attempt to convince his own investors regarding the positions taken in the hedge fund. Readers today can look back at this document to determine whether Mr. Burry was merely lucky or demonstrated unusual skills when coming up with his contrarian viewpoint.