Michael Burry's BIG Bet On Inflation (The Big Short 2.0?)

well earlier in the week we did a deep dive into michael bury's put option position against tesla but that wasn't even the biggest takeaway from cyan asset management's 13f filing this quarter the most alarming thing you find when you read between the lines is that barry is betting that will see big inflation and thus he is betting heavily against the market and this isn't hugely shocking if you followed his twitter before he deleted everything he warned inflation or even hyperinflation maybe just around the corner he compared america to the german inflation in the 1920s and even warned of a stock market crash saying people say i didn't warn last time i did but no one listened and still no one listens but i will have proof i warned so in february barry was talking the talk on twitter and now a few months later with this most recent 13 filing we can now see that he is walking the walk so let's dive into barry's multiple bets against the market right after this [Music] so yes michael bury is betting big time on inflation and he's doing it mostly through options call options and put options the reason for doing this is because with options if you hit the nail on the head you can make much larger returns while putting less money at stake the problem though is that if you get it wrong and your options expire worthless you don't salvage any of the money you use to buy the options that money is gone you lose a hundred percent so with that said what has michael bury bought well he's bought a few things he's bought put options on the ishares 20-plus year treasury bond etf equivalent to 1.3 million shares or 171.5 million dollars so he's betting that the long-term bond etf will go down he's also bought call options on the ultra-short 20-plus year treasury etf equivalent to 2.5 million shares or 55.1 million dollars so that one gets two times the inverse of the bond etf so he's betting that that one will go up he's also bought call options on the ultra pro short 20 plus year treasury etf which is the same as the one before but three times the inverse of the bond etf instead of two times furthermore he's also bought call options on another three times levered inverse bond etf and then lastly he's gone with a regular long position in that same tbt 20-year treasury ultra-short etf from before the one that's two times levered to the inverse of the us 20-year treasury bond index now that's a lot of jargon but what he's done here is he's found investments related to the 20-year plus treasury bonds index then if the investment is structured to go up as the bonds do he's bet against it and if the investment is structured to rise if bonds fall then he's betting on that investment overall it's the same thesis barry is betting on bonds falling now when does it suck to be in bonds well it sucks when interest rates start rising on you why would interest rates rise because the central bank has had to control inflation so this is michael bury betting that we're about to see big inflation so large that it will force the hand of the federal reserve interest rates will be raised the bond prices will fall and bury will make money and michael barry is not alone in this sentiment economists around the world are sweating right now on inflation running rampant with all the money printing that's happened for stimulus alongside the scarcity in many raw materials globally this is actually becoming such an issue that warren buffett the world's best investor and ceo of one of america's largest companies wanted to alert berkshire hathaway shareholders recently that he is seeing big inflation through berkshire's various businesses from raw material purchases by berkshire subsidiaries are you seeing signs of inflation beginning to increase let me answer that thing greg can get more we're seeing very substantial inflation it's very interesting i mean we're raising prices people are raising prices to us uh and it's being accepted i mean it's not uh you know take home building i mean you know the cost of we've got nine home builders and in addition to our manufactured housing and then uh operation which is the largest in the country so we really do a lot of housing the costs are just up up there's there's more inflation going on then quite a bit more inflation going on than people would have anticipated of just six months ago where there about so buffett sees it too as do many clever investors globally it's not just barry but going back to barry's bet so firstly he's amplifying the return on the cash he deploys by using predominantly options but the really crazy thing about this bet is that he also uses those leveraged inverse etfs to amplify the amplified bet take his call option position on tmv that is an inverse etf that goes up three times the amount that the 20 plus year bond index falls these inverse etfs really are special investing instruments and they actually bear very little in common with regular exchange traded funds they are constructed using various derivatives to provide a daily return almost exactly opposite of something for example uh an inverse etf to the s p 500 uses derivatives to give the opposite return of the s p 500 on that day but at the end of each day they get messed with they get rebalanced to ensure that tomorrow they again get the exact opposite of the index in bury's case they're rebalanced to ensure they get very close to three times the opposite of the 20-year treasury bond etf however this daily rebalancing means that they are only ever short-term investment vehicles you can't be holding these things for years you'll basically always underperform have a look at this this is the pro shares short qqq it bets against the nasdaq 100. this is the five-year chart for it but this is the five-year chart for the nasdaq 100 now they don't look like perfectly reflecting charts do they in fact over five years psq has gone down about 74 percent but the nasdaq 100 isn't plus 74 it's plus 197 the difference is because of the daily rebalancing and it's this reason why these products are considered short-term only and that leads me to my last point and that is that while while it's very exciting that we see michael bury make a bet against the market and it gives us something to analyze and it gives us something to chat about it's actually quite likely that he's already ditched these positions at least the ones in the inverse etfs because remember the 13f tells us exactly what was in his portfolio in march 31st it's now late may normally inverse etfs are held for a few days or a week or two usually not months so it might just be the case that barry bett against bonds some specific point in q1 happened to hold that position at march 31 but has since closed those positions however even if that was the case chances are he's probably still done pretty well because tlt the regular bond etf barry was betting against went down all through q1 losing 14 and because of that all of the inverse etfs barry was betting on have done very well tbt went up 32 in q1 and hasn't really dropped from there ttt went up 51 and has since dropped two percent and tmv also went up 50 in q1 and has since dropped seven percent so barry has almost certainly made good coin from this bet and although he probably isn't even in these positions anymore it still does give us really helpful information and that is that in this climate barry is willing to pull the trigger and bet against bond prices so what should we take away from this well we should take away this is a hint a hint to keep an eye on inflation and watch what happens with interest rates and if interest rates start to rise expect stocks to fall particularly companies that right now are extremely overvalued so overall guys very very very useful information i'd love to hear what you think what do you think is going to happen with inflation with interest rates over the next couple years federal reserve has said no no no we're going to keep interest rates low however remember inflation can force their hands so i'd love to hear what you guys think down in the comment section below drop me a comment and leave a like if you found this video interesting or useful i really appreciate it a lot of time and effort does go into producing these videos so if you did enjoy it or if you if you got something out of it i would really appreciate a like rating on the video but that will do me for today guys if you're interested in how i go about my investing you can head over to profitful links down in the description that is the business that i started up a year and a half ish ago pretty much just two courses up there from me anyway one about passive investing one about active investing it's just full in-depth step-by-step how to get through both of those strategies but check it out if you want to but no stress if you don't want to but that will do me for today's video guys thank you very much for watching and i'll see you guys next time

Channel: New Money

Views: 360,915

Keywords: stock market, michael burry the big short, the big short, big short, michael burry investments, michael burry stocks, michael burry portfolio, michael burry stock portfolio, the big short michael burry, michael burry 2020, short, burry, warren buffett, stock market investing, michael burry, inflation, michael burry inflation, inflation 2021, inflation stock market, inflation explained, michael burry warning, michael burry 2021, twitter, federal reserve, fed, interest rates 2021

Id: -FP3RkNBJ94

Length: 9min 55sec (595 seconds)

Published: Tue May 25 2021