Michael Burry Is BACK And The Reasons Are Frightening

Summary

Michael Burry, famous for predicting the 2008 recession, is now betting on the rise of China and its challenge to the U.S. economic dominance. By comparing China's ascent to historical empires like the Byzantines and Ottomans, Burry sees parallels in the decline of U.S. manufacturing and technological leadership. His portfolio, heavily invested in undervalued Chinese stocks like Alibaba and JD.com, reflects his belief in China’s economic expansion. Despite risks such as potential delisting fears and structural issues in Chinese companies, Burry sees these challenges as opportunities to profit from a shifting global economic order.

Takeaways

• 😀 Michael Burry has sold off U.S. stocks and is shifting his investment focus to Chinese stocks, such as Alibaba, JD.com, and Baidu.
• 😀 Burry’s new investment strategy is based on the belief that China’s economy is on the rise, while the U.S. is in a period of stagnation.
• 😀 Burry draws historical parallels between the decline of the Byzantine Empire and the current U.S. economic situation, suggesting that history is repeating itself.
• 😀 According to Burry, China’s rise mirrors the Ottoman Empire’s rise at the expense of the Byzantine Empire, focusing on trade routes and military expansion.
• 😀 The Belt and Road Initiative is a key factor in China’s growing global influence, positioning companies like Alibaba and JD.com for substantial growth.
• 😀 Burry is particularly interested in undervalued Chinese stocks, citing low price-to-earnings ratios (Alibaba at 8.55) and strong future growth potential.
• 😀 Burry's strategy mirrors his previous success of investing in unpopular, undervalued companies, which he views as opportunities for high returns.
• 😀 The U.S. faces risks of economic stagnation and debt accumulation, similar to the decline of past empires, which could lead to a shift in global economic power.
• 😀 Despite concerns about the U.S. potentially delisting Chinese companies from its stock exchanges, Burry remains confident in his investments in Chinese firms.
• 😀 The Chinese government has taken steps to reassure investors by regulating the VIE structure, which alleviates fears of a potential crackdown on Chinese stocks listed in the U.S.
• 😀 Hedge fund managers, including Ray Dalio, are also positioning themselves to profit from the shifting global power dynamics, with a particular focus on China’s rise in manufacturing and technology.

Q & A

Why is Michael Burry selling all of his US stocks?

Michael Burry is not selling all of his US stocks, but he is significantly reorienting his portfolio to invest more heavily in Chinese stocks. He has identified a potential economic shift, driven by China's rise as a global economic power, that he believes will offer substantial returns, similar to his successful bet against the housing market before the 2008 recession.

What historical event does Michael Burry compare the current situation in the US to?

Michael Burry compares the current situation in the US to the fall of the Byzantine Empire. He believes that, like the Byzantine Empire, the US is becoming complacent and overconfident in its past successes while China, like the Ottoman Empire, is on the rise and challenging the US for global dominance.

How does Burry view China's rise in relation to the US economy?

Burry sees China’s rise as an inevitable challenge to the US economy. He believes that China is strategically investing in key industries like manufacturing, 5G, AI, and green energy, which will enable it to become the new global economic leader, much like how the Ottoman Empire overtook the Byzantine Empire.

What role does the Belt and Road Initiative play in Burry's investment strategy?

The Belt and Road Initiative (BRI) is crucial to Burry's investment thesis. He believes that China’s expansion of trade routes across Asia, Africa, and Europe will boost the growth of companies like Alibaba, JD.com, and Buu, which are directly involved in this initiative. This growth positions these companies for significant financial returns.

Why is Michael Burry investing in specific Chinese companies like Alibaba, JD.com, and Buu?

Burry is investing in these companies because they are key players in China’s Belt and Road Initiative and are expanding rapidly in global markets. Additionally, these companies are undervalued by the market, which presents a lucrative opportunity for Burry as their earnings yield is high compared to many US stocks.

What concerns exist about investing in Chinese stocks, according to the transcript?

The primary concern about investing in Chinese stocks is the risk of delisting from US exchanges due to the Variable Interest Entity (VIE) structure that Chinese companies use to allow foreign investments. There's also fear regarding Chinese government policies and the potential for these companies to be negatively affected by tensions between the US and China.

What is the VIE structure, and why is it important to Burry's investment strategy?

The VIE structure allows Chinese companies to raise capital on foreign stock exchanges by setting up offshore entities, bypassing Chinese laws that restrict foreign ownership in key sectors. Burry sees this structure as a risk that the market has overblown, creating an opportunity to buy undervalued Chinese stocks at a discount.

How does the market currently perceive Chinese stocks, and why does Burry view this as an opportunity?

The market is generally fearful of investing in Chinese stocks due to the risks associated with the VIE structure and potential delisting. This fear has driven down stock prices, and Burry sees this as an opportunity to purchase high-quality companies at a steep discount, believing that the risks are overestimated and the reward potential is high.

What legislation from the Chinese government is relevant to the VIE structure, and why does it matter?

In March 2023, the Chinese Securities Regulatory Commission (CSRC) introduced legislation stating that companies with a VIE structure seeking an IPO on offshore markets must file with the CSRC. This legislation indicates that the Chinese government is relatively comfortable with the VIE structure, which reduces the likelihood of it being removed and makes Chinese stocks less risky than the market perceives.

What historical parallels does Ray Dalio draw in his analysis of the US and China?

Ray Dalio draws comparisons between the US-China situation and the cyclical nature of empires throughout history. He believes that, like past rising powers such as the Dutch and British Empires, China is seizing control of key economic and trade systems. Dalio suggests that the US may be in a period of decline due to stagnation and unsustainable debt, similar to other fallen empires.