Michael Burry attends the New York premiere of “The Big Short” at the Ziegfeld Theater on November 23, 2015 in New York City.
Jim Spellman | WireImage | Getty Images
“The Big Short” investor Michael Burry believes that Reddit-favored meme stocks will crash like the dot-com and real estate market bubbles of the past few decades, Barron reported on Friday.
“I don’t know when meme stocks like this are going to crash, but we probably won’t have to wait too long as I believe the retail sector is fully invested in this issue and Wall Street is on its laps,” said Barron.
“We’re running out of new money to jump on the bandwagon,” he added.
Burry was one of the first investors to recognize and benefit from the subprime mortgage crisis, as described in the popular book and movie. He made headlines in 2019 after saying he was Long GameStop, but sold his stake in the fourth quarter of last year before the meme mania began in January.
According to Barron, he believes the speculative trading that supports these meme stocks could soon hurt regular investors.
GameStop made Wall Street history in January with its monstrous short squeeze that propelled shares up 400% in one week. The video game retailer became a star on Reddit’s WallStreetBets forum, where retailers aimed to drive stock prices higher and crowd out short sales by hedge funds.
The trading mania was revived last month as Reddit traders continued to amass their favorite meme stocks like GameStop, AMC Entertainment, and others.
Although the frenzy has cooled recently, these stocks are still rising at unimaginable levels. GameStop is up more than 1,000% in 2021, while AMC is up over 2,500% this year.
Retail investors currently account for around 10% of all trades in the market, according to a recent report from Morgan Stanley. That level has been falling since the third quarter of 2020 when retail investments accounted for 15% of all trades during the pandemic-induced retail participation. however, the current value is still in the 82nd percentile.
GameStop has used its massive rally to raise new capital to accelerate its e-commerce transformation. Last week, the video game retailer announced that it had sold 5 million additional shares, raising $ 1.13 billion in capital. This is on top of an April offering of 3.5 million additional shares that raised $ 551 million for the company.
“This is a godsend for these companies,” Burry told Barron’s.
Click here for Barron’s full article.
– CNBC’s Yun Li and Maggie Fitzgerald contributed to this report
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