Michael Burry, the investor known for predicting the 2008 housing crash, believes that the U.S. banking system is showing serious signs of weakness. After the Federal Reserve’s latest meeting, Burry pointed out that the Fed now considers its reserve balances “ample” and will begin buying short-term U.S. Treasuries regularly. This process, starting December 12 at about $40 billion a month, is meant to keep liquidity flowing in the financial system, similar to how quantitative easing once worked.
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These ongoing Treasury purchases help banks meet reserve requirements by injecting more money into the system. While this isn’t exactly the same as the large-scale stimulus used during past crises, it still boosts the money supply. However, Burry finds it concerning that the Fed needs to do this at all. He noted that if U.S. banks can’t operate without more than $3 trillion in reserves or Fed support, it suggests that the system is fragile, not strong. For reference, current reserves stand at about $2.8 trillion.
Nevertheless, stocks had rallied after the Fed’s announcement, partly due to hopes that these actions would stabilize banks. According to JPMorgan (JPM), the optimism surrounding the Fed’s decision helped markets move higher. Still, Burry isn’t convinced. Therefore, he’s avoiding bank stocks and keeping his money in cash or Treasury money market funds. Separately, Burry has also warned about a potential AI stock bubble and made bets against major tech names like Nvidia (NVDA).
Is SPY Stock a Good Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on the SPDR S&P 500 ETF Trust (SPY) based on 420 Buys, 76 Holds, and seven Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $794.84 per share implies 16.7% upside potential.
