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Michael Burry’s Short Position and Credit Card Debt

Recently, the financial press was plastered with news that Michael Burry – the man who famously profited from the 2008 financial collapse – just bet $1.6b on a market crash.

To the average person, this looks like an ominous sign that they should get bearish. But let’s unpack the reality behind this scary headline.

  1. The headline says nothing about Burry’s time horizon. Is he short for a day? Week? Year? Who knows.
  2. This position was revealed in 13F filings, so it’s entirely possible the short position is already closed. By the time it hit the media, it was stale news.
  3. It tells us nothing about his portfolio’s net position. It’s possible these put options were bought to hedge a portion of a long position. It’s unlikely he’s betting the farm on a crash.
  4. Burry’s “bet” of $1.6b is based on the notional value of the put options he purchased. To enter this position, only a small fraction of that dollar amount is needed. This means the bulk of his position is still invested elsewhere.
  5. Finally, Burry’s portfolio track record may be solid but his history of public calls (either through filings or Tweets – see chart below) has a poor track record. Recall in January 2023 his ominous Tweet: “Sell”. Not helpful, given the strong market performance YTD.Remember: Burry owes nothing to people who are not his clients. His positions and public comments should mainly be ignored.

Here’s another scary headline we’ve seen recently:

Sounds bad, right?

On an absolute basis, credit card debt has crossed the $1 trillion milestone. But credit card debt – along with most other metrics – regularly hits record highs. Why? Because the economy grows over time. Bigger economy = bigger debts.

It’s important to put these statistics into context. The second chart below plots credit card debt as a proportion of GDP. As you can see, most people aren’t any more indebted than they were a decade ago.

Another thing to consider: credit card debt is only one component of a household’s overall balance sheet. To put into perspective, you must also consider incomes, home equity, other liabilities, savings, etc.

With this in mind, the average US household is in much better shape than at any time in history (third chart below), as the debt service burden remains low.