“Big short” investor Michael Burry warns of consumer debt crisis: “Winter is coming”

Hedge fund legend Michael Burry warned Friday that rising consumer debt poses a major risk to the US economy.

Burry, whose bet against subprime mortgages was made famous by the 2015 film The Big Short, shared a Bloomberg chart showing that US consumer borrowing swelled to over $40 billion in June – the second-highest since beginning of the recordings. Economists had expected a jump of $27 billion.

“Consumer net credit balances are rising at record rates as consumers choose violence over spending in the face of inflation,” Burry tweeted.

“Remember the problem of the savings glut? No longer. COVID helicopter money has taught people to spend again and it’s addictive. Winter is coming.”

Burry’s phrase “COVID helicopter money” likely refers to stimulus payments most Americans received as federal officials tried to prop up the economy during the pandemic.

Critics have argued that the checks actually overheated the economy and helped US inflation hit 8.5% in July. Burry’s tweet suggests he foresees a looming consumer credit crunch that could fuel recession fears.

Michael Berry
Michael Burry has also warned of a stock market crash.
Bloomberg via Getty Images

The ominous phrase “Winter is Coming” is a reference from the HBO series Game of Thrones, used by characters as a warning.

Meanwhile, Treasury Secretary Janet Yellen, leading Democrats and some policymakers have all pointed to strong consumer spending as a sign the US economy is not in recession – despite two quarterly declines in GDP.

Burry also dismissed the optimism that has fueled a small rally in US stocks in recent days. Better-than-expected inflation data in July has prompted investors to bet the US Federal Reserve will ease interest rate hikes that have weighed on equities.

Michael Berry
Michael Burry is best known for his bet against subprime mortgages.
Bloomberg via Getty Images

“Nasdaq is now up 23% from its low. Congratulations, we now have the average bear market rally.” Burry added in another tweet. “Across 26 bear market rallies from 1929-1932 and 2000-2002, the average is 23%. After 2000, there were two bear market rallies of over 40% and one rally of over 50% before the market bottomed.”

Burry often deletes his tweets shortly after they are posted.

Burry has frequently warned of an impending economic crisis. Last month he publicly criticized the White House for denying that the US was in a recession despite a slump in GDP.

“The White House wants you to redefine a recession as one in which consumers are not borrowing on credit cards to pay for inflation, nor is the workforce inadequate for the size of the economy,” Burry said at the time. “BIP on Thursday, not that there’s anything wrong with that.”

https://nypost.com/2022/08/12/big-short-investor-michael-burry-warns-of-consumer-debt-crisis-winter-coming/ “Big short” investor Michael Burry warns of consumer debt crisis: “Winter is coming”

JACLYN DIAZ

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