Michael Burry May Have Called 35 Of the Past 5 Recessions, But This Is Why He’s Probably Right About This One

I happen to be a pessimist by nature. In another life, I think I may have been a short-seller. This reality has meant that instead of looking at live through rose-colored glasses, the glasses I view the world from are tinted slightly darker.

Accordingly, when Michael Burry and other market skeptics speak, I listen. First of all, I’m a big fan of Michael Lewis and all his books, with The Big Short being an even better read than the movie (which was great by the way). But the reality is that when you see the world differently, and everyone’s acting like nothing is happening, it can be frustrating.

That’s where I find myself right now, and so too does Michael Burry, apparently. One of the more prescient feature characters in the aforementioned move above, Burry has effectively called 15 of the past 3 recessions. Hence, he’s become a laughing stock of some bulls as the market just marches higher.

Here’s why he may not be wrong this time around.

Why Burry’s Past Misses Are Different

Micheal Burry

We all fail to time things right. Miss the timer on those eggs on the stove? Fire them up again. Forget to put the chicken away in the fridge? Better head to the store tomorrow.

The thing is, calling a bubble a bubble doesn’t take much in the way of fortitude to do so. Burry was right about the subprime bubble, and there may well be one brewing again. However, some investors have viewed his other posts around valuations being ultra-high, and his outright calls of a bubble around certain AI stocks, as indicative of him calling the next bubble.

Personally, I view these posts more as cautionary tales of the times we’re living in. I think Burry knows he doesn’t want to be early this time, at least in the court of public opinion. As such, he’s focused on putting forward more broad and sweeping views of the market for his followers to eat up, now via his own independent newsletter.

We’ll see what comes of that. But the reality is that unlike the 2010s, when regulators could cut interest rates and rely on easy-money policies to spend a way out of a recession, today’s inflationary environment may provide more difficult challenges.

Burry Probably Isn’t Wrong With His Analysis

Man with his hands up in the air

I’m of the view that Michael Burry’s various bubble-ish calls of late are on the money. Historically reliable leading indicators flashed plenty of warning signs far before I saw Michael Burry posting about some sort of potential turmoil ahead. Thus, perhaps this market skeptic has found his timing (relatively speaking) in recent years.

I’d like to think that as I age, I understand the trends more. But I also know I will likely never achieve the level of financial analysis and insight Mr. Burry has over his career.

With the 2-10 Treasury spread spending a prolonged period being inverted from 2022-2024 (something that’s only preceded recessions in the past), as well as a raid steepening off these levels, I think elevated long-duration bond yields and annual interest payments for the U.S. government could result in some significant market intervention in the years to come.

I’m of the view that this intervention could lead to the next recession, not prevent it. We’ll see.

Burry is right.