If you did not know, Michael Burry is the legendary investor who predicted the 2008 housing crash. He stuck to his guns and rode out millions of dollars of losses and investor criticism for an entire year, and he was rewarded with being proven correct.
This time, Burry has issued a series of ominous tweets referring to the current economic situation.
He has called the state of the economy ‘The Everything Bubble’ and urged everyone to sell their securities. He says that not only will there be a recession, but it will be worse than anything previously seen.
In another post, he cautions people to not mistake the current economic climate for that of 1981, where inflation was tamed and things went back to normal.
Burry has been wrong before, but sooner or later he is usually proven right. It’s up to you as to how you handle this information though.
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Michael Burry says even more, alluding to the type of financial instrument at play currently.
In case you were wondering:
A death spiral convertible is a type of financial instrument that is often used by companies to raise capital, but can be risky for investors.
A death spiral convertible typically takes the form of a bond or preferred stock that can be converted into common stock at a discount to the market price. The conversion price is typically set based on the market price of the common stock at the time of the initial investment, with the discount being a predetermined percentage below that price.
The risk with a death spiral convertible is that if the market price of the common stock falls significantly below the conversion price, the convertible holder may choose to convert the bond or preferred stock into a large number of common shares, which can cause dilution for existing shareholders. This can lead to a further decline in the market price of the common stock, which can in turn lead to more conversions and more dilution, creating a “death spiral” for the company’s stock.
The name “death spiral” comes from the potential for this cycle of conversions and dilution to continue until the company’s stock becomes nearly worthless, hence “spiraling” towards death.