Skip to main content

'Big Short' Michael Burry Sounds the Alarm About China-U.S. Tensions

The legendary investor warns about the economic impact of the showdown between Beijing and Washington.
  • Author:
  • Publish date:

Michael Burry became a legend after the financial crisis of 2008. 

This crisis, marked by the collapse of the real estate market fueled by subprime mortgages, is considered the most serious since the Great Depression.

Burry's genius was captured in the 2015 film The "Big Short". This movie describes how Burry, who had no particular expertise in finance and real estate, came to understand that the real estate sector had become a sandcastle with financiers and bankers creating exotic financial products around mortgages granted to financially fragile households and borrowers with poor credit. 

The financier had therefore decided to bet on the collapse of the subprime, hence the name "Big Short." History had proven him right. 

If the federal government had not intervened, the financial system as we know it would have collapsed. However, there have been major victims, such as investment bank Lehman Brothers, which disappeared in September 2008, and investment bank Bear Stearns, which collapsed and was sold to JPMorgan Chase in March 2008.

China Isn't Russia

Since then, the investor who is at the head of the Scion Asset Management, has been considered one of the birds of bad luck in financial circles. He seems to marry this role since he adopted Cassandra as his profile name on Twitter. Cassandra is a person who predicts the future by giving an unfavorable outcome to events. All of this derives from Cassandra, a daughter of the Trojan king Priam in Greek mythology. She was able to predict the future but was not listened to.

If he had not been listened to by the bankers he was trying to warn before the outbreak of the 2008 crisis, Burry has since drawn everyone's attention to each of his predictions.

Burry, who fears that U.S. financial markets have not bottomed despite a disastrous performance since the start of the year, now warns of tensions between the United States and China, the world's two largest economies.

"China's markets are having an 'America in early 2009' moment," Burry wrote on Twitter on Sept. 21. "Fear and uncertainty are peaking or close to it But China is too important to America, 20X Russia. America cannot effectively fight or sanction China without spiting itself nearly as severely. Just ask @KingJames."

The reference to "King James" refers to National Basketball Association superstar Lebron James. James, the NBA's global ambassador, caused controversy by appearing to embrace Beijing propaganda in 2019 by criticizing the Houston Rockets franchise general manager. The latter had expressed his support for the Hong Kong protesters in a tweet that was later deleted.

Basically, Burry, who usually deletes his tweets, believes that the Biden administration had better follow the example of James, whose attitude was due to the fact that China is a big market for the NBA according to critics and human rights defenders. 

Follow the NBA Lead

China is indeed a kind of factory for many American companies and flagships like Apple  (AAPL) , Tesla  (TSLA) , General Motors  (GM) . The country is also home to many raw materials. To measure its weight in the global economy, and the American economy specifically, the lockdowns in certain Chinese regions to limit the spread of covid-19 have disrupted the supply chains of many U.S. companies. Automakers have suspended production of certain models and shut down some factories, leading to higher car prices.

Burry therefore fears that things will get worse if tensions continue to mount between Beijing and Washington.

During a "60 Minutes" interview broadcast on Sept. 18, President Joe Biden said that American troops would defend Taiwan in the event of a Chinese invasion.

China considers Taiwan, with a population of some 23 million, to be one of its provinces, which it has failed to reunite with the rest of its territory since the end of the Chinese Civil War in 1949.

Biden's remarks, however, come after a significant rapprochement between the United States and Taiwan, at a time when relations between Beijing and Washington are at their lowest in decades.

A bill that provides for the first direct military aid from the United States to Taiwan passed a key stage in Congress on Sept. 14. A few days earlier, Washington had announced the sale of $1.1 billion in weapons to Taipei. In early August, a visit to Taiwan by House Speaker Nancy Pelosi also angered Beijing. China then launched the most important military maneuvers in its history around the island.

Beijing has been mounting economic, diplomatic and military pressure on Taipei since current Taiwanese President Tsai Ing-wen, from a pro-independence party, came to power in 2016.

On the economic front, China has been pushing in the last few years to build up its own tech and other industries.

Meanwhile, the U.S. has restricted its companies from supplying key components to Chinese tech companies such as Huawei.