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- Michael Burry signaled the stock-market rebound this year reminds him of the dot-com bubble.
- The "Big Short" investor highlighted how stocks and interest rates both plunged in 2001 and 2002.
- Burry has warned the S&P 500 could plunge by over 50%, and recently tweeted one word: "Sell."
Michael Burry has hinted the surge in stocks this year reminds him of the dot-com bubble, and could end with a similarly devastating crash.
The investor of "The Big Short" fame tweeted a chart Tuesday that showed the S&P's roughly 40% plunge between February 2001 and October 2002. It also plotted the decline in the Federal Reserve's benchmark interest rate from 6% to below 2% during that period.
"This time is different," Burry wrote, likely mocking commentators who see the latest market rally as sustainable.
Elevated inflation has spurred the Fed to hike its target interest rate from almost zero in March to nearly 5% today, and to signal further increases are coming.
Higher rates encourage saving instead of spending and investing, and make borrowing more expensive, which can relieve upward pressure on prices. Yet they also dampen demand, which can erode corporate profits, pull down asset prices, and temper economic growth, lifting the risk of a recession.
Fears of soaring prices, aggressive rate hikes, and a painful economic downturn sent the S&P 500 down 19% and the Nasdaq Composite 33% lower in 2022. However, investors have piled back into stocks this year, driving the benchmark index up 9% and its tech-heavy peer up 17% year to date.
Burry's latest chart and comment suggest he sees shades of the stock market's surge in early 2001, when rates were 6%. He seems to expect both the S&P 500 and the Fed Funds rate to eventually tumble — as they did during the dot-com crash — with the Fed cutting rates as the economy weakens and asset prices slump.
The Scion Asset Management chief has been pounding the alarm on stocks this year. He shared a similar chart in January, circling in red the S&P 500's rally between September 2001 and March 2002, before it bottomed six months later. He also tweeted a single word of advice to investors: "Sell."
Burry has previously warned the S&P 500 could plummet by more than 50% to around 1,900 points. He's also noted that blistering but brief rallies are common during market downturns. Moreover, he's cautioned that the Fed may balk at stepping in to shore up asset prices, given the risk of exacerbating inflation.
Notably, Burry emphasized in October that he's bracing for a collapse in stocks that dwarfs the dot-com crash, as there's so much money parked in index funds today.
"Difference between now and 2000 is the passive investing bubble that inflated steadily over the last decade," he tweeted at the time. "All theaters are overcrowded and the only way anyone can get out is by trampling each other. And still the door is only so big."
Burry shot to fame after his billion-dollar bet against the mid-2000s housing bubble was immortalized in the book and movie "The Big Short." He's also known for investing in GameStop well before the meme-stock boom, and betting against Elon Musk's Tesla and Cathie Wood's flagship Ark fund in 2021.