Michael Burry, the ‘Big Short’ investor, gives an inside look at how his infamous bet against the housing boom got started.

Spotlight:

  • Michael Burry gave a behind-the-scenes look at how his famous wager against the housing boom got started.
  • In 2005, an investor from “The Big Short” told a colleague to look for weak mortgage-backed securities.
  • Burry singled out two subprime mortgage lenders who went bankrupt subsequently.

In a tweet on Sunday, Michael Burry, the author of “The Big Short,” reminisced on the beginnings of his famous bet against the US housing bubble, and thanked a late colleague who assisted him in his study.

“When it all began…and RIP Joe,” the Scion Asset Management boss stated. “A more brilliant one, I never met.”

On May 19, 2005, the investor provided a copy of an email he wrote to one of his workers, Joe Sipley. The email instructed Sipley to review a list of mortgage-backed securities and identify the riskiest ones – those tied to mortgages with a high risk of failure but not priced appropriately to reflect that chance.

Burry stated, “I’d like you to comb through these … and identify the best 2005 shorts,”

Scion might hedge against the risky assets by buying credit default swaps, an insurance-like derivative that would pay out handsomely if enough individuals failed on their homes, according to him.

Burry urged Sipley to keep a careful eye on the mortgage businesses behind the bundled loans, citing New Century and Novastar in particular as having “documentation stinks.” The housing collapse in 2007 pushed New Century, one of the nation’s top issuers of subprime mortgages, into bankruptcy.

When the bubble broke, Novastar, another big subprime lender with a plethora of internal problems, was also badly burned.
According to his LinkedIn, Sipley worked as an analyst for Burry’s hedge fund from 2003 to 2006, and then returned to Scion as director of equities in 2013. According to his obituary, he battled an aggressive form of brain cancer for eight years before dying in 2019.
The book and movie “The Big Short” documented Burry’s billion-dollar bet against the housing market.

More recently, the investor has raised concerns about the speculative mania around meme stocks and cryptocurrencies, forecast a historic market meltdown, and gambled on Elon Musk’s Tesla and Cathie Wood’s Ark Invest.