Legendary investor and trader who called the 2008 financial crash is betting against Tesla and long-term US Treasury bonds, warning of higher inflation figures on the horizon. Dr. Michael Burry is betting against the US Federal Reserve.

The big short investor reorganised his holdings, swapping out the likes of Pfizer and Wells Fargo for Alphabet and Occidental Petroleum. These sweeping portfolio changes came last quarter, as the firm exited 15 of 23 positions, adding 18 new names to its holdings. However, most of Burry’s capital was bet against Tesla and US Treasuries, with long hedges for Google, Facebook and other value-stocks.

The size of the option bets rival the bet against the housing that made Burry famous.

Dr. Burry is best known for his billion-dollar bet against the US housing  bubble in the mid-2000s, which was chronicled in Michael Lewis’ book “The Big Short.” He also helped pave the way for the GameStop short squeeze earlier this year by investing in the video-games retailer and pressuring its bosses to update the business model back in 2019.

Separately, the investor has also been vindicated on his criticisms against corona-virus lockdowns, which he vehemently opposed in an email to Bloomberg back in April 2020, accurately foreseeing that economic shutdowns were worse than the virus itself. His projection was realised by 27 academic studies (as well as many data scientists), all of which reached the same conclusion.

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The investor’s Scion Asset management firm held bearish put options on Tesla shares, the iShares 20+ year Treasury Bond ETF, as well as the iShares Russell 200 Growth ETF. Presumably, Burry’s expectations are for Tesla’s stock to continue crashing and inflation to eat away at long-dated bonds while small-cap companies slump in price.

The timing of Burry’s trade is interesting since similar arguments about Tesla’s perpetual unprofitably were also made last year, though the market did not agree at the time. Burry must see fundamental and technical reasons for Tesla’s stock to continue tumbling.

In 2020, Tesla’s stock increased eight times over. So far in 2021, Tesla is down 17% year-to-date and 40% after peaking in February.

Dr. Burry’s second largest position is a short bet against 20-year Treasury Bonds.

This is effectively a bet against the United States Federal Reserve. The 10-year Treasury note started the year at 0.93% per year, which is below the Fed’s inflation targets and expectations. He specifically shorted the long end of the yield curve, which has a longer duration and therefore more downside if yields continue rising.

One of Burry’s smaller positions is effectively another Treasury short via an ETF (TBT). The thesis probably goes something like this: long-term interest rates are at historically low levels, and Burry believes that inflation will continue to accelerate, causing investors to dump Treasuries. This is a negative carry trade, which means that Burry expects that cash will outperform Treasuries.

13-F filings are not the most informative due to timing lags and obfuscation, but Dr. Burry’s filing suggests that his main focus is the Tesla stock and long-term US treasury bonds. The investor has been vindicated in the past – will it be any different this time?

In May 2020 last year, macro investor Paul Tudor Jones revealed his bitcoin holdings, which he bought as a hedge against inflation, comparing the crypto to gold’s role in the 1970s. Earlier this month, Jones’ expectations of creeping inflation started to be realised, with the US CPI Report showing a rise of 4.2% in the 12 months through April – the fastest rate since 2008.

While bitcoin has recently witnessed a tumble in its price, the digital asset has increased 450% since April 2020, and Burry’s expectations of accelerated inflation suggest that it’s not over.

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