$TLT - Michael Burry's bet on inflation

NASDAQ:TLT   Ishares 20+ Year Treasury Bond ETF
As many traders have been made aware due to the 13F filings, Michael Burry is short on a lot of things. With over half of a billion dollars in TSLA puts, one might assume he wants the EV manufacturer burn but there's more to it than just that. Over 2020, to stimulate growth in the market and in the economy, the fed dropped interest rates to 0. While they didn't stay at 0 for long, the low rates were incredibly bullish for these growth centric companies. Think TSLA , ROKU, SQ , ZM, Cathie Wood, etc. Companies that are traditionally very OVER valued when looking at their P/E. These low rates enabled investors to price in years and years of growth ahead of schedule. Now, in 2021 the headline of the year has been INFLATION . Everywhere you look you see tech (with their inflated P/E ratios) crumbling, value stocks climbing, fear of dollars becoming worthless and pouring into commodities whether that's oil , lumber, crypto or metals.

Michael Burry's true portfolio is not one directed at Tesla specifically, but one betting on inflation to catch up with us. While TSLA makes up a large portion of this position, he also has 170M in TLT puts and 55M in TBT Calls. Bringing his portfolio to a net position of roughly 760M in derivatives betting on inflation . Most interesting to me anyways is the TLT position. TLT runs inverse of the 10 and 30 year bonds. Last year as rates went to 0 to encourage spending, TLT shot up 18% in a week. This current climate of near 0 rates are fantastic for financing (because if you can lock in a 30yr mortgage for 3% and inflation is 3%, that's essentially borrowing money for free. For 30 years. While an asset appreciates), but the spending is not beneficial for the valuation of the dollar.

As of December 2020, nearly 35% of all US dollars in existence were printed in the 10 months prior. There are two ways in which a functioning market would pay for this, one would be increased taxes which have been proposed but not passed. The other is through inflation devaluing dollars and increasing relative cost of goods. The latter is much more expensive but generally goes under the radar. At some point the Federal Reserve will need to SLOW DOWN the the economy. The most likely way for this to happen is to raise interest rates making borrowing money more expensive.

From a technical point of view the US 10 year bond is bull flagging on a larger time frame, this is probably the most consistent bullish pattern and is line with the point of view of the Federal Reserve raising rates ahead of schedule. Conversely, TLT is bear flagging on the weekly, so there's no divergence there which is great for Michael Burry's analysis. In addition to TLT's bear flag , it's on the verge of breaking below a decade long support line it's followed and is on it's 200 day moving average.

Jerome Powell has stayed true to his word thus far and has, honestly, done quite well in keeping the market afloat and strong over the last 14 months or so. The real question is whether or not he was wrong in his assumption that rates can stay low for as long as he's promised and if inflation is truly under their control.

Warwick, OptionsSwing Analyst


Michael Burry, from the Big Short, seems to have placed quite the inflation bet. Thanks for writing this analysis on the topic.
200 coins
+7 Reply
jsgiardino TradingView
@TradingView - He saw what others couldn't or wouldn't see last time; it sure seems like we have a lot of the same irrational exuberance in the markets today...
+1 Reply
Thank you! But could you please explain, why should 20+ years bonds go down, while the 10 years bonds go up? Have been wondering for a while...
+10 Reply
calkaesar OwlOnFire
@OwlOnFire, following
mjmassens OwlOnFire
@OwlOnFire, the bond yields (10yr, 30yr) work inverse of bond prices (TLT)
+2 Reply
OwlOnFire mjmassens
@mjmassens, got it, thanks!
BTC is my inflationary hedge
+4 Reply
This theory hinges on one central point that is incorrect, unfortunately. Quantitative easing is not money printing, it's a reserve swap with a US GVT security. The added "dollars" is actually only reserves, and cannot leave the central banking system.
+3 Reply
@jlb05013 wow reserves keep getting bigger and bigger😂 almost like... there's an unlimited amount.
jlb05013 beauallgood
@beauallgood, yes, but it is nothing more than a reserve swap, it cannot leave the banking system in any way, so it cannot cause inflation, unfortunately. Check out Steve Van Metre or Jeff Snider on Youtube for the details - these guys are the best resources for monetary policy.