Michael Burry: meme stocks will crash as new money dries up in 2021

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Michael Burry: meme stocks

“The Big Short” investor Michael Burry: meme stocks beloved on Reddit are headed for a collapse, similar to the dot-com and housing market bubbles of previous decades, Barron’s reported Friday.

“I don’t know when the collapse of such meme stocks will happen, but we probably won’t have to wait too long because I believe the retail public is fully invested in this topic and Wall Street has jumped on its tail,” Barry told Barron’s.

“We’re running out of new money to jump on the bandwagon,” he added.

Barry was one of the first investors to notice the subprime mortgage crisis and profit from it, as recounted in a popular book and movie. He made headlines in 2019 after claiming a long position on GameStop, but sold his stake in the fourth quarter of last year, before the meme mania began in January.

According to Barron’s, he believes the speculative trading supporting these meme stocks could soon hurt regular investors.

GameStop made Wall Street history in January thanks to a monster short squeeze that saw its stock rise 400% in one week. The video game retailer became the star of the WallStreetBets forum on Reddit, where retail traders sought to boost stock prices and squeeze hedge funds into short sales.

Trading mania picked up last month as Reddit traders continued to pounce on shares of their favorite memes, including GameStop, AMC Entertainment and others.

Although the excitement has subsided recently, these stocks are still rising at an unimaginable rate. GameStop is up more than 1,000% in 2021, and AMC is up more than 2,500% this year.

According to a recent Morgan Stanley report, retail investors now account for about 10% of all transactions in the market. That level has declined since the third quarter of 2020, when retail investing accounted for 15% of all deals during the pandemic-induced retail frenzy; however, the current rate is still in the 82nd percentile.

GameStop took advantage of the massive rally to raise new capital to accelerate its e-commerce transformation. Last week, the video game retailer said it sold 5 million additional shares, raising $1.13 billion in capital. That’s on top of a 3.5 million additional shares offering in April, which brought in $551 million for the company.

“It’s just a godsend for companies like this,” Barry told Barron’s.

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