He Made $700 Million Betting Against Subprime Mortgages..Now See What He's Up To!

Mortgage crisis seer Michael Burry bets on farms

Jon Erlichman,Dakin Campbell, Bloomberg News

Wednesday, September 8, 2010



Tony Avelar / Bloomberg
Michael Burry, who headed the hedge fund that made money on his prediction of the housing market collapse, is investing in farmable land, small technology companies and gold.
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The former hedge fund manager who predicted the housing market's plunge said he is investing in farmable land, small technology companies and gold as he hunts for original ideas and braces for a weaker dollar.

"I believe that agriculture land - productive agricultural land with water on site - will be very valuable in the future," Michael Burry, 39, said in a Bloomberg Television interview. "I've put a good amount of money into that."

Burry, as head of Scion Capital LLC, prodded Wall Street banks in early 2005 to create credit-default swaps as a hedge against bonds backed by the riskiest home loans. The strategy paid off as borrowers defaulted, letting his investors more than quintuple their money from 2000 to 2008, according to Michael Lewis's book "The Big Short."

Burry, who now manages his own money after closing the fund in 2008, said finding original investments is difficult because many trades are crowded and asset classes often move together.

"I'm interested in finding investments that aren't just simply going to float up and down with the market," he said. "The incredible correlation that we're experiencing - we've been experiencing for a number of years - is problematic."

Still, it's possible to find opportunities among small companies because large investors and government officials focus on bigger ones, he said. He is particularly interested in small technology firms.

"Smaller companies in Asia, I think, are neglected," he said. "There are some very cheap companies there."

Gold is also a favored investment as central banks issue debt and devalue their currencies, he said. Governments haven't adequately addressed the causes of the financial crisis and may be sowing the seeds for future problems by borrowing, he said. In the United States, lawmakers showed they didn't understand how to prevent another crisis when they gave the Federal Reserve and Chairman Ben Bernanke additional authority, he said.

"The Federal Reserve, in my view, hadn't seen this coming and in some ways, possibly contributed to the crisis," he said. "Now Bernanke is the most powerful Fed chairman in history. I'm not sure that's the right response. The result tends to tell me they're not getting it right."

The Dodd-Frank Act, signed by President Obama on July 21, creates a consumer bureau at the Fed to monitor banks for credit card and mortgage lending abuses. The bill also gives the Fed chairman a seat on a newly created Financial Stability Oversight Council, which is supposed to spot and respond to emerging systemic risks.

Originally, investing was a hobby for Burry, who as a resident neurosurgeon at Stanford Hospital in the 1990s typed his ideas onto message boards late at night.

He went to high school in San Jose, graduated from UCLA and then earned a medical degree from the Vanderbilt University School of Medicine, according to "The Big Short." The book portrays him as a loner from a young age who excelled in areas that required intense concentration. While searching for undervalued companies, he discovered that his own house was overpriced, prompting a broader investigation of the housing market.

It's possible Burry is part of "an extremely small group" of economists and investors who are "really exceptionally adroit" at forecasting, former fed Chairman Alan Greenspan said in April. Burry has been critical of the role Greenspan played in fueling the crisis with low interest rates.

Burry said Wall Street investment banks such as Goldman Sachs Group Inc. don't always act in the best interests of clients. The firm is disbanding its principal-strategies business, one of the groups that invests the company's own money, two people with knowledge of the decision said last week.

"I don't believe that any Wall Street bank always acts in the best interests of its clients," said Burry, adding that he often fought with firms while betting against housing. "It's an incredibly vicious, incredibly competitive world when you're going to go take a position opposite one of those banks."

He asked seven Wall Street banks to help him bet against the housing market, and only Deutsche Bank AG and Goldman Sachs expressed any interest, Lewis wrote in his book. At the end of June 2008, original investors in Burry's hedge fund received a return on their money, after fees and expenses, of 489.34 percent, according to the book.

This article appeared on page D - 5 of the San Francisco Chronicle



Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/09/08/BUI11F9T3G.DTL#ixzz0z3M53GLj