Hedge fund legend Michael Burry warned Friday that rising consumer debt represents a major risk to the US economy.
Burry, whose bet against subprime mortgages was made famous in the 2015 film “The Big Short,” shared a Bloomberg chart showing US consumer borrowing swelled to more than $40 billion in June – the second-most on record. Economists had expected a $27 billion jump.
“Net consumer credit balances are rising at record rates as consumers choose violence rather than cut back on spending in the face of inflation,” Burry tweeted.
“Remember the savings glut problem? No more. COVID helicopter cash taught people to spend again, and it’s addictive. Winter coming.”
Burry’s phrase “COVID helicopter cash” likely refers to stimulus payments that most Americans received as federal officials sought to bolster the economy during the pandemic.
Critics have argued that the checks actually overheated the economy and contributed to US inflation that hit 8.5% in July. Burry’s tweet suggests he foresees a looming credit crunch for consumers that could add to recession fears.
The ominous phrase “Winter coming” is a reference from the HBO series “Game of Thrones,” used by characters as a warning.
Meanwhile, Treasury Secretary Janet Yellen, top Democrats and some policymakers have pointed to strong consumer spending as a sign that the US economy isn’t in a recession – despite two straight quarterly declines in GDP.
Burry also dismissed optimism that has fueled a minor rally in US stocks in recent days. Better-than-expected July inflation data has led investors to bet the Federal Reserve will ease up on interest rate hikes that have weighed on stocks.
“Nasdaq now up 23% off 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 40%+ bear market rallies and one 50%+ rally before the market bottomed.”
Burry frequently deletes his tweets shortly after they are posted.
Burry has frequently warned of a looming economic crisis. Last month, he publicly slammed the White House for denying the US was in a recession despite the GDP slump.
“The White House would like you to redefine a recession as one in which consumers are not borrowing on credit cards to pay for inflation, and neither is the labor force inadequate for the size of the economy,” Burry said at the time. “GDP out Thursday, not that there’s anything wrong with that.”