STLA - Michael Burry's Next Big Short: Betting $1.6 Billion Against The U.S. Stock Market

2023-08-14 18:28:01 ET

Summary

• Michael Burry has bet close to $1.6 billion on a stock market crash, loading up on put options against the U.S. stock market.
• Burry trimmed his positions in regional bank shares and exited his bets on China e-commerce giants JD.Com and Alibaba.
• About 94% of Burry's portfolio is "short" the major equity indices, but he still sees value in selected names like Expedia and MGM Resorts.

Michael Burry's 13F - Summary

Dr. Michael Burry, the famous "Big Short" hedge fund manager known for accurately predicting the 2008 subprime mortgage crisis, has apparently found a new "Big Short" opportunity: betting more than $1.6 billion on a stock market crash.

In line with a bearish macro view, Dr. Burry aggressively trimmed his positions in regional bank shares and exited his bet on China e-commerce giants JD.Com (JD) and Alibaba (BABA).

Big Short On U.S. Stocks

According to Scion Asset management's most recent 13F filing , dated 14 August, Dr. Burry has loaded up on put options against the U.S. stock market. As of the end of Q2 2023, Burry owned puts on 2,000,000 shares of the SPDR S&P 500 ETF Trust (SPY), which tracks the performance of the S&P 500 (SP500), as well as puts on 2,000,000 shares of the Invesco QQQ ETF (QQQ), which mirrors the performance of the tech-focused Nasdaq 100-index. Notably, the notional value of these puts was $886.6 million for the SPY, and $738.8 million for QQQ, respectively, adding up to $1,625 million.

Needless to say, Burry's aggressive short on SPY and QQQ is quite an attention grabber, and with independently-thinking investor like Burry being so bearish, investors should definitely take note. That said, however, investors should also consider that Burry has already warned of a crash in early 2023, posting a "Sell" tweet on Twitter/ X ...

... only to change his view on the stock market 3 months later, when Burry withdrew his Sell recommendation.

Bank, China Stocks Zeroed

While Burry loaded up on a bearish macro bet, shorting the U.S. equity markets, he aggressively trimmed the majority of his regional bank exposure.

In Q1 2023 , Burry reportedly bought more than $23 million worth of banking stocks, including Wells Fargo (WFC), Capital One (COF), Huntington Bank (HBAN), Western Alliance Bank (WAL), First Republic (FRC), New York Community Bancorp (NYCB) and PacWest (PACW). Now, in Q2 Burry zeroed his exposure on all listed banks, except New York Community Bancorp, which he reduced by 76%, to $2.2 million "only."

It is not clear whether Burry made money on his bet on regional banks. Because although shares in New York Community Bancorp and Western Alliance Bank recovered quite nicely through the June quarter, First Republic stock crashed to zero, and was subsequently taken over by JPMorgan Chase (JPM); while PacWest recently announced to merge with Bank of California.

In Q1, Burry's largest positions were JD.Com, with $11 million worth of stock, and Alibaba with $10.2 million worth of stock. Now in Q2, however, Burry exited these positions completely -- likely at a loss.

About 6% Of Burry's Portfolio Is "Long"

About 94% of Burry's notional portfolio exposure is "Short" the major equity indices, SPY and QQQ. However, while Burry's overall macro positioning is undoubtedly bearish, he still sees value in a few selected names: in Q2, Burry added some exposure to the travel industry, buying some shares in Expedia (EXPE) and MGM Resorts (MGM), bringing his holdings to $10.9 and $6.6 million, respectively. Burry also added exposure to healthcare companies Cigna (CI, $7.7 million) and CVS Health (CVS, now $6.9 million). With regards to notable new positions, Burry bought $4.7 million worth of shares in Warner Bros. Discovery (WBD), and he also opened a $5.7 million position in Stellantis (STLA), a stock that I personally like a lot, and rated "Strong Buy."

Conclusion

Dr. Michael Burry has disclosed a massive bet against the U.S. stock market, buying puts on approximately $1.6 billion worth of SPY and QQQ notional. In line with a bearish macro view, Burry trimmed his positions in regional bank shares and exited his bets on China e-commerce giants JD.Com and Alibaba.

With about 6% of Burry's portfolio being long equities, Burry sees value in selected names like Expedia, MGM Resorts, CVS Health, Cigna, Warner Bros. Discovery and Stellantis.

Reflecting on Burry's "Big Short" portfolio positioning, I would like to point out that the reasoning behind his bearish bets remains clouded, and only open to speculation. Moreover, referencing the data points disclosed with the 13F filing, it is impossible to know what strike and duration Dr. Burry is targeting with his bearish options bet. Overall, however, it should be left no doubt that the "Big Short" investor is positioning for an aggressive re-rating in equity prices.

While Dr. Burry supports a "Big Short" thesis, there are also arguments for a "Big Long," in my opinion. In fact, I continue to believe that the U.S. stock market is in a Bull market; and for a more detailed argument on the thesis, I would like to point to my recent writing - here.

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