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Michael Burry warns the Mother of All Crashes is coming


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Michael Burry warns the Mother of All Crashes is coming

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  #1 (permalink)
 xplorer 
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I don't normally read Business Insider articles but this one caught my eye


Quoting 
  • Michael Burry predicted meme stocks and cryptocurrencies will plummet.
  • "The Big Short" investor warned the "mother of all crashes" is coming.
  • Burry pointed to excessive leverage as a major problem for crypto.

Casual investors buying meme stocks and cryptocurrencies are signing up for devastating losses, Michael Burry warned on Thursday.

"All hype/speculation is doing is drawing in retail before the mother of all crashes," the investor tweeted. "When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries."

Burry added that people's fear of missing out has propelled asset prices to unsustainable levels. "#FOMO Parabolas don't resolve sideways," he cautioned.

The Scion Asset Management boss also sounded the alarm on crypto fans borrowing recklessly to buy their favorite coins.

"The problem with #Crypto, as in most things, is the leverage," he tweeted. "If you don't know how much leverage is in crypto, you don't know anything about crypto."


On Business Insider

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 Mich62 
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Crypto is very volatile (since the beginning as it is still immature) and Bitcoin still didn't test the $20.000 breakout level. Crashes will occur for sure and leverage will have a major impact but what after that?

I am still holding on to my crypto portfolio using no leverage and a time horizon of at least 5 years based fundamentals believing blockchain technology will have a major impact on diverse areas (like for instance Africa) and industries (like for instance Supply Chain). Innovations like NFTs and smart contracts, to name a few, are rapidly getting more traction.

Goldman Sachs says crypto is not a viable investment but at the same time sets up and expands its crypto trading desk (because of increasing demand).
Could it be the big guys (and institutions) are late to the party trying to talk the price down so they can join? When prices fall I expect demand to pick up.

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 bobwest 
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I fundamentally agree with the idea that unwise investors and brand new traders are going wild with "meme" stocks that they have never heard of, and with crypto, which has not yet found a useful purpose (other than concealing the identity of those involved in a transaction. Which can be very useful, depending on the business you are in. Ahem.)

But this kind of observation, that things have gone too far, is seldom, if ever, that useful for trade or investment timing, in my opinion. It's almost always the case that something is too high relative to some historical norm, and then it often gets even more too high.

When the cautioners decide to join in, and the nay-sayers are converted to enthusiasts, it is more likely that the original negative forecast will become true. But I think it's very hard to use this for any kind of timing.

Having said this, I won't be surprised if I am wrong and it all comes down tomorrow. But I won't be surprised if it doesn't, either.

"Forecasting is hard, especially about the future," as someone may have once said, perhaps Niels Bohr: https://quoteinvestigator.com/2013/10/20/no-predict/

Bob.

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 xplorer 
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bobwest View Post
with crypto, which has not yet found a useful purpose (other than concealing the identity of those involved in a transaction. Which can be very useful, depending on the business you are in. Ahem.)




Quoting 
But this kind of observation, that things have gone too far, is seldom, if ever, that useful for trade or investment timing, in my opinion. It's almost always the case that something is too high relative to some historical norm, and then it often gets even more too high.

When the cautioners decide to join in, and the nay-sayers are converted to enthusiasts, it is more likely that the original negative forecast will become true. But I think it's very hard to use this for any kind of timing.

Coming from Burry we can infer
  • He's not a day trader. His horizon is long term
  • He was famously early for his most notable prediction
  • .oO(...but boy was he right!)

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 Blue Eagle 
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From the article...

"The problem with #Crypto, as in most things, is the leverage," he tweeted. "If you don't know how much leverage is in crypto, you don't know anything about crypto."


I don't know anything about crypto..but I know many people have gotten underwater on the leverage that the indices have. Is crypto leveraged higher than that? Anyone?

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 SMCJB 
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Yes in some places you can get 100:1 leverage. That's one of the reasons so many of the crypto exchanges are banned in the US. Excessive leverage. (The other big one being KYC).

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 Mich62 
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One ES contract equals 4,170 (time of writing) x $50 = $208,500. You can trade one contract with a margin of $500 (or even cheaper, also in the US). That's a 417 : 1 leverage.

A MES contract equals $20,850. Traded with $50 margin is also a 417 : 1 leverage.

For the (M)NQ it's 565 : 1.

It's a combination of not understanding leverage, inexperience and especially the high volatility in crypto that can cause substantial losses trading crypto (like in any other instrument). One has to understand leverage and when/how to use it.

You could also read "If you don't know how much leverage is in futures, you don't know anything about futures." (in Burry's words, not mine).

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 MNSTrading 
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the index leverage is insane. a bit less than 1/4 million dollars for $500??

whose idea was that? can i get a house for $500?

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 SMCJB 
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While @Mich62 is highlighting that some brokers will allow some clients to "day trade" at higher than official leverage, the official margin requirement for a non-member is over $12,000 and hence the official, CFTC approved, leverage is less than 20:1. If you hold a position at EOD that is the maximum leverage you can achieve. This is on a product considerably less volatile than cryptocurrencies. The maximum overnight leverage varies by contract, the more volatile it is, the less the leverage. I believe the lowest leveraged CME future are Ether Futures which have a margin requirement of 42% of notional, which equates to about 2.4:1.

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 MNSTrading 
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also leverage is very tricky. Its easy to understand on paper, the math isn't hard, but you have to see the numbers fly in your trading account when the volume comes to really know it. (whichever way they happen to fly)

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