You’ve probably heard of SCION leader Michael Burry. During the late 2000s financial crisis,
he was kind of a big deal. So big, that an Oscar-winning film called “The Big Short”
staring Christian Bale, Steve Carrell, Ryan Gosling and Brad Pitt was made about his ability
to make millions by seeing the financial crisis coming and betting against mortgage securities.
And now he is back with another prediction.He believes Wall Street’s house of cards will
come crumbling down again. He showed his pessimistic hand during a series of 16 Tweets. Burry deleted
them, but I have you covered. Burry has used Twitter to warn of speculative bubbles in
markets and predict a devastating crash. One of his tweets he actually compares his situation
right now to his situation in 2008. "People say I didn't warn last time. I did, but no
one listened. So I warn this time. And still, no one listens. But I will have proof I warned."
He adds on saying . "Speculative stock #bubbles ultimately see the gamblers take on too much
debt. #MarginDebt popularity accelerates at peaks. At this point the market is dancing
on a knife's edge. Passive investing's IQ drain, and #stonksgoup hype, add to the danger."
This Tweet leaves much more meat on the bone. Let’s bite into it. To understand margin
debt, you must first understand margin accounts. A margin account is an investment account
that holds securities purchase with a mix of cash and borrowed funds. The latter is
where margin debt kicks in and potentially kicks investors’ ass, like Bury is referring
to. Margin debt is the amount borrowed to buy or maintain a security investment, in
this case stocks. When a stock’s price drops, the investor’s obligation to pay back the
margin debt doesn’t. Of course, a broker will only allow the equity of a holding to
drop so far before demanding the loan is paid back or the position is sold. How steep price
drops get before margin debt needs to be paid off/the position sold depends on the broker,
but generally, it’s 30 percent minimum equity. As those of you who follow Wall Street Bets
know, there are plenty of fools whose head is larger than the financial knowledge inside
of it that believe in good times, “stonks only go up.” That subreddit skyrocketed
to 10 million members after the wins with GME and bitcoin, so like alot of fake news,
that mentality is spreading to more people than ever before that are too new to investing
to know the truth. Wall Street Bets seems to have Elon Musk and Chamath Palihaptya in
its diamond-encrusted corner as well, not to mention if the average Wall Street Bets
member has just $1,000 dollars to invest, it’d be a fairly large hedge fund at $10
billion dollars.
He's also tweeted criticism of Tesla - which he's short - as well as bitcoin, Dogecoin,
Robinhood, and the GameStop buying frenzy this year. All of that I will cover in an
upcoming video.
So now, lets move on to Burry’s current portfolio in the grim face of predicted doom.
CitiGroup leads the group of portfolio holdings. The investment banking company comprises almost
15 percent of Scion Asset Management’s portfolio. Although revenues dropped 7 percent last quarter,
a recovering economy with brighter outlooks for consumers shined upon the rest of CitiGroup’s
financials. Sunny news includes a net income of $7.9 billion, which increased significantly
from the previous year-to-year point, driven by the lower cost of credit. Earnings per
share of $3.62 increased significantly from last year, reflecting the increase in net
income, as well as a slight decline in shares outstanding.In addition to promising overall
financials, Citigroup resumed buying shares of common stock. This is typically a positive
sign that companies believe the share price will rise, which is obviously good for Burry’s
portfolio.
What plans are in place to make that dollar-doused dream a reality? Citigroup announced in mid-April
strategic actions in Global Consumer Banking—as part of an ongoing strategic review—which
will allow Citi to direct investments and resources to the businesses where it has the
greatest scale and growth potential. Citi will focus its Global Consumer Bank presence
in Asia and EMEA on four wealth centers—Singapore, Hong Kong, the UAE and London. As a result,
Citi intends to pursue exits from its consumer franchises in 13 markets across the two regions.
Pfiezer shot up to second place in Scion’s Quarter 1 portfolio. Burry injects Pfizer
into 13.83 percent of the portfolio. He’s certainly not the only elite investor foreseeing
Pfizer’s profitability push. There’s plenty of methods to anti-Moderna madness. Pfizer
reports First-Quarter 2021 Revenues of $14.6 Billion. As the company contributes to the
world getting healthier, the company reports a healthy 42 percent Operational Growth. The
on-point shots keep firing. Pfizer now Anticipates Revenues of Approximately $26 Billion in the
future, Reflecting 1.6 Billion Doses Expected to be Delivered in 2021 Under Signed Contracts
as of Mid-April 2021. Over 1.2 billion have been given so far.
Kraft Heinz provides another supple boost to the portfolio, charming Burry for third
place in the Scion portfolio. The versatile company comprises over 9 percent of the portfolio.
Turns out Heinz is good at ketchup and catchup. The recent Quarter 1 earnings report shows
very tasty all-around results. Gross profit increased 18.5 percent, net income increased
49 percent, operating income increased over 41 percent as well. Good performance on the
shelves translates to good performance on the stock, as evidenced by the adjust earnings
per share increase of 24 percent. Net sales increased 3.9 percent versus the year-ago
period to $6.4 billion. Product Pricing was up 1.5 percentage points versus the prior
year-to-year period, reflecting a combination of reduced retail promotions and revenue management
gains that were partially offset by unfavorable trade expense timing versus the year-ago period.
Volume/mix was up one percentage point, versus the year-ago period, driven by favorable changes
in retail inventory levels, particularly in developed markets .
Burry isn’t the only big name starting with Bu that believes in what Kraft-Heinz brings
to the table. Warren Buffett adds himself to the list. Kraft-Heinz makes the top-five
biggest holdings in Berkshire Hathaway’s famed portfolio at 4.18 percent (325.6 million
shares). The company plays a moderate role in Buffett making over $17 billion this year.
For a complete picture at how Buffett made that money, watch our previous video in the
description:
Burry calls upon call options for all of the aforementioned top 3 stocks of the portfolio.
A call option gives the buyer of the asset (in this case a stock) the right to purchase
the stock at a specific purchase price for a predetermined period of time.
Now let’s cover something simpler: the other two stocks that make Burry’s top five.He
logs $11.21 million-dollars (4.99 percent) worth of stock in Lumen Technologies, probably
better known to you as The Technology Company Formerly Known as CenturyLink. Despite my
Prince reference, the stock hasn’t exactly ascended to the throne of great performance.
The company advertises internet speeds that are faster than its stock price growth. It’s
year-to-date growth acts as a more of a slow crawl and the price is less than half of where
the stock was five years ago and it’s heavily considered overvalued today. That said, CenturyLink
does pay a small dividend and beat profit expectations in its Quarter 1 report, encouraging
investors like Burry.
I saved the newest for last. Last quarter, Burry decided the time is ‘NOW’ to make
a new investment. NOW Incorporated represents Burry’s fifth-largest portfolio position
at about $10.8 million dollars (4.79 percent of the portfolio). The relatively obscure
stock fails to attract much news, but what we know looks good.
Now posted revenues of $361 million for the quarter ended March 2021, surpassing industry
estimates by about 8 percent. This compares to year-ago revenues of $604 million. The
company has topped consensus revenue estimates three times over the last four quarters.Now
shares have added about 41.8% since the beginning of the year versus the S&P 500's gain of 10.9
percent, so things are moving in the right direction. Off the back of a promising future,
popular financial researcher Zack’s recommends buying the stock now. Burry listened.
That’s all for the portfolio, hope you enjoyed..