The Prototype of "The Big Short" in 2023: Sound the alarm for an economic recession and bet on the decline of the S&P 500.

Zhitong App has learned that Michael Burry, the prototype of the Hollywood movie "The Big Short" and a well-known hedge fund manager, made pessimistic predictions about the stock market and the economy, shorted the S&P 500 index and semiconductor stocks, and bought low during the regional banking crisis, which helped him survive the eventful year of 2023.

Here are three highlights of Burry's 2023:

1. Misfortune and Gloom

At the beginning of this year, Burry made a series of pessimistic predictions in his classic style.

In early January 2023, Burry posted on X, saying, "Inflation has peaked. But this is not the last peak of this cycle," "We may see a decline in CPI, possibly negative growth in the second half of 2023, and the United States will enter a recession from any perspective."

"The Fed will cut spending, and the government will stimulate the economy," he continued. "We will see another inflation peak. It's not difficult."

As it turned out, Burry was right. The inflation rate has declined in the second half of this year: it has dropped from a peak of over 9% last summer to below 4% in recent months. However, so far, economic recession has not become a reality, with the US third-quarter GDP growing at an annualized rate of 5.2%. Inflation has also not resurfaced, and the Fed has not lowered interest rates after raising them to 5% to curb price increases.

In the following weeks, Burry shared several worrisome charts, one of which compared the performance of the S&P 500 index at the time with the unfortunate rebound during the burst of the dot-com bubble in the early 21st century.

He posted a word at the end of January: "Sell," which sounded the alarm for people. For years, Burry has been warning investors to be cautious about the current market; he lamented the "biggest speculative bubble in history" and predicted the "mother of all crashes" in 2021.

In February of this year, he also issued a warning to shareholders of 3B Home, stating that the company's stock would be heading for disaster. The home goods retailer filed for bankruptcy in April and delisted from Nasdaq in May.

Burry seemed to retract his cashing out advice in a post in March, writing, "I was wrong to say sell." However, in a subsequent tweet, he seemed to have a mocking tone, saying, "Back to the 1920s, there was no BTFD generation like you. Congratulations."

2. Banking Troubles and Cheap Trades

In March of this year, Silicon Valley Bank, Signature Bank, and Silvergate Capital all collapsed due to customer withdrawals. Burry compared the mistakes of lending institutions to those made during the dot-com bubble and the real estate bubble.

"2000, 2008, 2023, it's all the same," he wrote. "Arrogant and greedy people take foolish risks and then fail."

Nevertheless, Burry correctly predicted that the chaos would quickly end and would not pose a serious threat to the broader economy. This value investor took advantage of the market's anxiety in the first quarter and bought stocks of banks, including First Republic Bank and PacWest Bancorp (PACW.US), which were hit hard. In the second quarter, he also found other cheap stocks and bought a series of energy, commodities, and shipping stocks, including Coterra Energy and Sibanye Stillwater.

Barry increased some of these positions in the third quarter, including Euronav and Star Bulk Carriers. However, during this period, he also reduced his stock portfolio from 33 to 13, with a total value (excluding options) decreasing from $111 million to $44 million, more than halved.

3. Put Options

Barry's most notable move in 2023 was his bearish stance. He purchased put options on two exchange-traded funds that track the S&P 500 Index and the Nasdaq 100 Index in the second quarter. The nominal value of these positions on these indices was $1.6 billion.

Gerry Fowler, Head of European Equity Strategy and Global Derivatives Strategy at UBS, said to the media at the time, "Even for a large fund, this is a significant position." Fowler stated that even though Barry only paid a small portion of the $1.6 billion for hedging, "the risk exposure he used shows considerable leverage."

Barry then stirred up waves with his third move. Before closing out, he bought put options on 100,000 shares of iShares Semiconductor ETF, a subsidiary of BlackRock, with a nominal value of $47 million. This ETF ranks NVIDIA, a graphics chip company, as its third-largest holding. NVIDIA's market value has doubled this year, driven by the AI boom.

The disclosure of the portfolio did not indicate the dates of the trades or closures, but Barry's bets seem to have not paid off. The S&P 500 Index and the Nasdaq Index both rose from early April to the end of September, and the Microchip ETF has climbed close to its historical high.