In 1974, Jens O. Parsson published an excellent, in-depth historical analysis of the hyperinflationary crash of Weimar Germany under the command of the original money printer, Rudy von Havenstein, “Dying of Money: Lessons of the Great German and American Inflations,” which is often remembered during critical times as a historical parallel to what can happen next. A couple of days ago, no one other than the Big Short, Michael Burry, has addressed the theme of Weimar Germany and particularly its hyperinflation in a lengthy tweetstorm, while using Parsson’s seminal work as a basis for his argumentation, and affirming that the U.S. is now going down the same path.
Extensively quoting the book, Burry noted how inflation has recurred throughout history, how it usually arises after an economic boom and an increase in new fortunes, how it leads to higher social turbulence, higher living expenses, and widespread poverty. He compared Germany’s policy mistakes in the 1920s to the current U.S. economic trajectory. And although most monetary historians are very familiar with the details of this narrative, the fact the man who was made famous in the Big Short is calling for Weimar-style hyperinflation in the U.S. is particularly concerning.
In the summer of 1922, all the existent marks in the entire world together didn’t have enough inherent worth to buy a single newspaper or a tram ticket until November of 1923. “That was the spectacular part of the collapse, but most of the real loss in money wealth had been suffered much earlier. Throughout these years the structure was quietly building itself up for the blow,” the investor highlighted, saying that Germany’s inflation cycle unfolded not for a year but for nine years, which represented “eight years of gestation and only one year of collapse”. His punchline came as he recalled this analysis was written in 1974 in reference to what took place in 1914-1923, arguing that from 2010 to 2021, the U.S. was in the process of “Gestation”.
On Thursday, Burry has said in a now-deleted tweet: “Prepare for inflation! Re-opening and stimulus on the way”. Moreover, the investor is credited with unknowingly helping to lit the spark that laid the groundwork for the GameStop short squeeze, as he invested in the video-game retailer in 2019 after coming to the conclusion that the stock was undervalued. But he couldn’t have imagined his efforts would help to incite thousands of day traders on a Reddit forum, WallStreetBets, to coordinate a short squeeze and send GameStop shares up by as much as 2,500% in a matter of weeks.
But now that he’s played a major role in both “The Big Short” and “The Big Squeeze,” the investment community is watching closely to the investor’s latest insights. However, in a recent statement to Bloomberg, Burry described the GameStop frenzy as “unnatural, insane, and dangerous” and sounded the alarm for a massive market bubble.
He highlighted that growing speculation and widespread betting with borrowed money have pushed the stock market to the brink of collapse. “The market is dancing on a knife’s edge,” Burry said. In another tweet, Burry alerted to a “massive spike” in the volume of bullish call options being traded. He included the hashtags #cautiontothewind and #blowofftop to underline his view that those types of wagers are shooting stocks to extreme levels.
Only one day after the Weimar tweetstorm, Burry, whose display name on Twitter is Cassandra, referring to the priestess from Greek mythology who was cursed to share true prophecies but never to be believed, tweeted the following: “People say I didn’t warn last time. I did, but no one listened. So I warn this time. And still, no one listens. But I will have proof I warned”. Undoubtedly, he will. This is where we are now, the only question left is when do the exponential currency collapse phase will start.
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