Burry,
Predictor of Mortgage Collapse, Bets on Farmland, Gold By Jon Erlichman
and Dakin Campbell | Sep 9, 2010 6:03 PM ET
(Corrects residency, examination of housing market in 11th
and 12th paragraphs of story published Sept. 7.)
Michael Burry, the former hedge-fund manager who predicted
the housing market’s plunge, said he is investing
in farmable land, small technology companies and gold as
he hunts original ideas and braces for a weaker dollar.
“I believe that agriculture land -- productive agricultural
land with water on site -- will be very valuable in the
future,” Burry, 39, said in a Bloomberg Television
interview scheduled for broadcast this morning in New York.
“I’ve put a good amount of money into that.”
Burry, as head of Scion Capital LLC, prodded Wall Street
banks in early 2005 to create credit-default swaps to bet
against bonds backed by the riskiest home loans. The strategy
paid off as borrowers defaulted, letting his investors more
than quintuple their money from 2000 to 2008, according
to Michael Lewis’s book “The Big Short”
(Norton/Allen Lane).
Burry, who now manages his own money after shuttering the
fund in 2008, said finding original investments is difficult
because many trades are crowded and asset classes often
move together.
“I’m interested in finding investments that
aren’t just simply going to float up and down with
the market,” he said. “The incredible correlation
that we’re experiencing -- we’ve been experiencing
for a number of years -- is problematic.”
Still, it’s possible to find opportunities among
small companies because large investors and government officials
focus on bigger ones, he said. He is particularly interested
in small technology firms.
“Smaller companies in Asia, I think, are neglected,”
he said. “There are some very cheap companies there.”
Investing in Gold
Gold is also a favored investment as central banks issue
debt and devalue their currencies, he said. Governments
haven’t adequately addressed the causes of the financial
crisis and may be sowing the seeds for future problems by
borrowing, he said. In the U.S., lawmakers showed they didn’t
understand how to prevent another crisis when they gave
the Federal Reserve and Chairman Ben S. Bernanke additional
authority, he said.
“The Federal Reserve, in my view, hadn’t seen
this coming and in some ways, possibly contributed to the
crisis,” he said. “Now, Bernanke is the most
powerful Fed chairman in history. I’m not sure that’s
the right response. The result tends to tell me they’re
not getting it right.”
The Dodd-Frank Act, signed by President Barack Obama on
July 21, creates a consumer bureau at the Fed to monitor
banks for credit-card and mortgage lending abuses. The bill
also gives the Fed chairman a seat on a newly created Financial
Stability Oversight Council, which is supposed to spot and
respond to emerging systemic risks.
Background in Medicine
Originally, investing was a hobby for Burry, who as a resident
in neurology at Stanford Hospital in the 1990s typed his
ideas onto message boards late at night, according to “The
Big Short.”
He went to high school in San Jose, California, graduated
from the University of California, Los Angeles and then
earned a medical degree from the Vanderbilt University School
of Medicine, according to the book. It portrays him as a
loner from a young age who excelled in areas that required
intense concentration. A study into the shares of homebuilders
and then mortgage insurers eventually prompted a broader
investigation of the housing market, according to the book.
It’s possible Burry is part of “an extremely
small group” of economists and investors who are “really
exceptionally adroit” at forecasting, former fed Chairman
Alan Greenspan said in April. Burry has been critical of
the role Greenspan played in fueling the crisis with low
interest rates.
Goldman Sachs
Burry said Wall Street investment banks such as Goldman
Sachs Group Inc. shouldn’t trade on their own account
and don’t always act in the best interests of clients.
The firm is disbanding its principal-strategies business,
one of the groups that make bets with the company’s
own money, two people with knowledge of the decision said
last week.
“I don’t believe that any Wall Street bank
always acts in the best interests of its clients,”
said Burry, adding that he often fought with firms while
betting against housing. “It’s an incredibly
vicious, incredibly competitive world when you’re
going to go take a position opposite one of those banks.”
He asked seven Wall Street banks to help him bet against
the housing market, and only Deutsche Bank AG and Goldman
Sachs expressed any interest, Lewis wrote in his book. At
the end of June 2008, original investors in Burry’s
hedge fund received a return on their money, after fees
and expenses, of 489.34 percent, according to the book.