Big Short 2.0: Michael Burry *FLIPS* | Closes Fund!

Key Concepts

• Michael Bur's Fund Closure: Scion Asset Management, managed by Michael Bur, has closed, with capital to be returned to investors by year-end.
• Investor Pressure and Timing: A primary reason for the closure is investor impatience with the timing of Bur's short positions, even when his long-term thesis is correct.
• Palantir and Nvidia Shorts: Bur's recent significant short positions were on Palantir and Nvidia, which the media widely reported as a $900 million short, but was actually a much smaller bet on put options.
• Depreciation Schedules and Accounting: The video discusses the accounting treatment of chip depreciation, arguing that extending depreciation curves for high-residual-value assets like chips is not necessarily fraud but an alignment with market values.
• Market Obsession with Short-Term Performance: The current market environment prioritizes daily gains, making it difficult for managers with long-term bearish theses to retain investors.
• OpenAI's Engagement Softening: Reports suggest a recent softening in GPT engagement, with OpenAI's CFO attributing it to content restrictions and temporary issues, while the video speculates on user base saturation and increased marketing spend.
• Bur's Track Record: A historical overview of Bur's calls shows a mixed record of being right and wrong on market timing and specific asset valuations.
• "Me Then, Me Now" Analogy: Bur's sentiment is characterized by a belief that his thesis will eventually prove correct, but it requires time, which investors are unwilling to grant.

Fund Closure and Investor Dynamics

Michael Bur has announced the closure of his fund, Scion Asset Management, and will return capital to investors by the end of the year, with a small holdback for taxes and audits. This mirrors a similar situation in 2008 when clients demanded their money back due to losses on his short positions, despite his eventual correctness about the housing crisis. The core issue highlighted is the conflict between a fund manager's long-term strategy and investors' demand for immediate results. Investors, Bur states, "want results or they want their money back." This pressure often leads fund managers to focus on large-cap stocks to avoid underperforming benchmarks like the S&P 500, even if their contrarian bets could be profitable in the long run. Bur's statement, "My estimation of value in securities is not now and has not been for some time in sync with markets," directly addresses this disconnect.

Palantir and Nvidia Short Position Misconceptions

The video delves into the recent media portrayal of Michael Bur's short positions on Palantir and Nvidia. The media widely reported this as a "$900 million short," but the transcript clarifies that this figure was likely an exaggeration, possibly due to multiplying the actual bet by 100 because of options. The SEC filing reveals that Bur purchased approximately "$9.2 million of those option contracts," specifically put contracts with strike prices of $110, expiring in December 2027 and January 2027. This indicates that Bur's bets were structured for a potential Palantir crash in 2026 or 2027, not an immediate event. The video suggests that the media's misrepresentation of the short size might have been a factor in the market's reaction.

Market Reaction and Palantir's Decline

The closure announcement coincides with a notable slump in Palantir's stock price. The video points to a decline starting a few days prior to the letter's date (October 27th), with specific drops of 7-8% on the 4th, 1.5% on the 5th, and another 7% on the 7th. While it's possible Bur exited his shorts at a profit, the exact timing of his purchases within the quarter is crucial. If he bought the securities in July, August, or September, it's not definitively clear he profited on the "media-called $900 million short." The video questions whether Bur was attempting market manipulation by "bagging on Nvidia and Palantir" to exit his positions.

Investor Perspectives on Bur's Calls

The video outlines three potential interpretations of Michael Bur's actions and his recent fund closure:

1. "Bro Moon" (Bur was wrong again): This perspective dismisses Bur's bearish outlook, believing that AI and related stocks are destined for further growth. They might acknowledge he was "right briefly but also wrong with timing."
2. The Middle Ground (Bur will be right in the future): This group acknowledges that Bur might be wrong in the short term but believes his long-term thesis will eventually be validated.
3. "It Doesn't Matter" (Accounting Fraud): This group views the underlying accounting practices of companies like Palantir as fraudulent, regardless of Bur's investment performance. This often refers to the depreciation schedules for chips.

Accounting for Chip Depreciation

The video addresses the argument that extending depreciation curves for chips is "accounting fraud." The presenter argues that this is not fraud but rather an "alignment with market values for chips." The rationale is that if the residual value of a chip remains high after a few years (citing examples like Tensor processors, A100s, and H100s), it makes sense to extend depreciation periods. The counter-argument to the "fraud" claim is that extending depreciation actually increases current expenses, potentially overstating current expenses rather than understating them.

OpenAI's Engagement and Marketing Shift

A report on OpenAI's "quiet slump" and "AI bubble warning" is discussed. OpenAI's CFO reportedly informed private investors that engagement with GPT had softened, attributing it to recent content restrictions (related to children, mental health, suicides). The CFO expects this trend to reverse, but the video questions this, suggesting potential user base saturation and increased competition. The fact that OpenAI is now running ads on Facebook and Copilot is advertising on X (formerly Twitter) is seen as indicative of a need to spend money to maintain growth, implying that some of the reported expense growth isn't solely for chips but also for marketing. This shift is seen as beneficial for companies that receive this marketing revenue, such as Netflix, Disney, and YouTube.

Michael Bur's Historical Performance and Sentiment

A spreadsheet compiled by "Sensei on X" is presented, detailing Michael Bur's past market calls. This shows a mixed track record:

• September 2019: Called an index fund bubble (wrong).
• February 2020: Called for S&P 500 put options for a broad downturn (correct).
• December 2020 - January 2021: Tesla overvalued (wrong, Tesla surged 743%).
• Late January 2021: Predicted no more GameStop-like short squeezes (wrong, AMC skyrocketed).
• February 2021: Market on a knife's edge, crash imminent (wrong, market boomed through November 2021).
• February - March 2021: Bitcoin a speculative bubble, consider shorting (short-term drop, but later hit new highs).
• June 2021: Called S&P 500 for a 50% crash (wrong, market kept rising).
• September 2021: Epic crash for crypto, SPACs, and memes (correct).
• January 2022: Called for a crash (aligned with the presenter's bearish stance; market bottomed in Q4 2022).
• January 2023: Tweeted "sell," admitted he was wrong (an "oopsy doopsy").
• August 2023: $1.6 billion in puts (likely nominal, closer to $16 million) on S&P 500 and NASDAQ, contributing to underperformance. Also, puts on Chinese tech and Nvidia amid a slowdown (mixed performance, Nvidia near all-time highs).

Despite this mixed record, the video suggests Bur is "absolutely convinced that he is right." His "Me then, Me now" imagery implies a belief that his thesis will eventually play out, but it requires time. The closure of the fund is framed not as a "fold" of his beliefs, but as an inability to endure the constant pressure from investors demanding immediate returns while he waits for his long-term bets to materialize.

Conclusion and Takeaways

Michael Bur's decision to close Scion Asset Management highlights the inherent tension between long-term investment strategies and short-term investor expectations. While Bur's bearish thesis on certain tech valuations might eventually prove correct, the market's obsession with daily performance makes it unsustainable for him to manage external capital under such pressure. The mischaracterization of his Palantir and Nvidia short position by the media, coupled with the inherent difficulties of timing market downturns, has led to this outcome. The video suggests that Bur remains convinced of his long-term views but can no longer bear the burden of managing investor capital while waiting for his predictions to unfold. The discussion also touches upon the accounting of chip depreciation, reframing it as a logical alignment with market values rather than outright fraud, and notes a potential shift in the AI sector towards increased marketing spend as growth plateaus.