Michael Burry Is Right on Obvious Things, Recklessly Wrong On Most Things

I hope he reads this headline because I mean it.

I‘ve following Michael Burry for quite a while, and he’s generally likable, has a decent understanding of macroeconomics, but he broad-brushes scenarios across industries he doesn’t fully understand the mechanics of.

My first flag of doubt came after he spoke on how the index investors were making a huge mistake by moving into passive ETFs. He claimed that ETF sponsors would not know how to navigate massive liquidity events, where either the ETF shares or the underlying assets would face major selling pressures and decouple. This, I believe, stemmed from a complete misunderstanding on how the ETFs are created and destroyed and the markets that make them in the first place.

Since the rise in ETF‘s popularity, there have been quite a number of events that tested his hypothesis and proved him to be wrong. Overtly wrong.

His more recent callout was directed towards the decline of Bitcoin and how it would be fatal to the big-name mining companies. I read what he’s put out there to make sure I wasn’t grossly overlooking anything, and after doing some scenario testing at a $35-45k price point, I can honestly say there is not remotely the profound bankruptcy risk he’s supposing we’ll see.

I‘m not a bitcoin guy. I love the blockchain technology, but I own exactly .0015 bitcoin. Recently, I’ve come to appreciate the economics of some of the mining companies. I think crypto mining and staking isn’t going anywhere as the use case continues to build for these technologies.

I say all this because if you are holding stocks like MARA, your company isn’t at risk of disappearing overnight. Bankruptcy happens when the debt itself grows burdensome due to a combo of a few factors: a lack of balance sheet flexibility, lack of liquidity to maintain operations, declining operating income, persistent DSCR <1, or high maintenance capital costs.

pick any random 2 scenarios from the list and only then do you have the recipe for conjuring a bankruptcy.

Michael Burry also went on to take a stab at Microstrategy (who hasn’t?).
…As much as I detest companies like that of Michael Saylor’s, he’s far from bankrupt. MSTR still has asset coverage to pay down debt. MARA, the other company he’s picked on, also has balance sheet flexibility and decent operating cash flow. Though their bankruptcy risk is a non-zero probability, it’s still incredibly low.

The more honest analysis from him would be valuation impairment is imminent and it’s a long road to reclaiming their highs without price performance from Bitcoin. Done. That‘s all to be said. I‘d accept that warning all day.

Everything else is just noise.