Michael Burry: Meme Stocks are Slated to Crash Because “We’re Running Out of New Money”

After causing significant uproar on twitter last month when he warned (and subsequently deleted) that meme stocks and cryptocurrencies will soon meet their doom with “the mother of all crashes,” the infamous Michael Burry recently elaborated on his take (and skepticism) of the current meme stock craze.

In an interview with Barron’s published on Thursday, the Scion Asset Management founder who successfully bet against subprime mortgages ahead of the 2008 financial crisis, revealed that he is seeing “shades of 1999 and 2007” in the current meme stock market, and suggests that the skyrocketing rallies could end up creating significant grief for ordinary retail investors. He explained that in 1999, everyone who was cashing in on dot-com stocks anticipated the rally will endure, while those that were profiting with multiple home leverages in 2007 also thought the trend would continue, too.

Although Burry did not clarify a timeline for a potential meme stock crash, he did suggest that one is certainly on the horizon: “I don’t know when meme stocks such as this will crash, but we probably do not have to wait too long, as I believe the retail crowd is fully invested in this theme, and Wall Street has jumped on the coattails,” he explained in an emailed response to Barron’s.

Burry, whose character was portrayed in the book and movie “The Big Short,” warned that retail traders might soon be side-swiped by Wall Street institutions that have significantly more resources to initiate gamma squeezes. “We’re running out of new money available to jump on the bandwagon,” Burry explained, adding that the latter is attributed to the elevated demand for shares as market makers attempted to hedge against sold call options.

In the second half of 2019, Burry revealed his bullish stance on GameStop, and correctly forecast that the video game retailer’s stock was undervalued. In fact, it was Burry’s reasoning that sparked the bull thesis articulated by WallStreetBets members ‘RoaringKitty” and ‘DeepF*uckingValue” on Reddit, which ultimately created the retail investor phenomenon associated with GameStop.

Information for this briefing was found via Barron’s. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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