'Big Short' investor Michael Burry turns to Warren Buffett to underscore the dangers of inflation

Warren Buffett and Michael Burry.

  • Michael Burry cited Warren Buffett to highlight the dangers of inflation.
  • “The Big Short” investor highlighted Buffett’s warning that inflation erodes real returns.
  • Burry studied Buffett as a young man but decided to forge his own path.
  • Visit the Business section of Insider for more stories.

Michael Burry of “The Big Short” fame turned to Warren Buffett to hammer home the dangers of inflation in a Twitter thread on Tuesday.

“Warren Buffett’s #BerkshireHathaway annual letters guided me tremendously earlier on,” the Scion Asset Management boss said.

“During the last great inflation, #WarrenBuffett wrote about the topic at hand, and for those eyeing the future, this is worth revisiting, the 1980 chairman’s letter.”

Burry shared several screenshots from Buffett’s 1980 letter to Berkshire Hathaway shareholders. In the letter, Buffett explained that high rates of inflation act as a tax on capital, discouraging companies from investing by reducing their real returns.

Inflation can also result in investors earning negative returns, Buffett said, because it serves as an implicit tax on their purchasing power, on top of the explicit taxes they pay on dividends and investment gains.

“The average tax-paying investor is now running up a down escalator whose pace has accelerated to the point where his upward progress is nil,” the Berkshire chief wrote.

Burry dredged up the letter to emphasise that if inflation ramps up, corporate profits today will be far more valuable then profits in the future.

“Taking #Buffett’s lessons from 1980, and porting them to 2021 doesn’t take much translation,” he tweeted.

“If high inflation…Each $ of earnings today becomes important,”he continued. “Earnings 10 and 20 years from now, the corollary goes, may be worth substantially less tomorrow than today.”

Banging the inflation drum

Burry shot to fame after his billion-dollar bet against the US housing bubble was immortalised in the book and movie “The Big Short.”

He also paved the way for the GameStop short squeeze in January when he bought a stake in the video-game retailer in 2019 and wrote several letters to its board.

Burry has been sounding the alarm on inflation. He warned investors last week to “prepare for inflation” as the US economy reopens and receives a fresh round of stimulus. He also compared America’s current trajectory to Germany’s path to hyperinflation in the 1920s.

The Scion chief studied Buffett early in his career, but decided not to model himself on the Berkshire boss. Burry realised Buffett’s quirks and distinctive investment style were key to his outsized success, and also recognised he was too socially awkward to ever be as popular as the investing icon.

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