Latest / The Bear Market Podcast with Fexingo: Surviving Downturns, Buying the Dip, and Long-Term Resilience / Why Michael Burry Is Shorting Caterpillar Now
Transcript
- Lucas: Michael Burry just did something he has never done before, at least not publicly. He disclosed a short position on Caterpillar — ticker CAT — for the first time in his career. Luna: Wait, the guy from The Big Short? The one who called the housing crisis? He's betting against a Dow stock that's nearly doubled in the past year? Lucas: The same. And you've hit the key tension — Caterpillar has been on an absolute tear, largely riding the AI infrastructure buildout. Data centers need generators, backup power, heavy equipment for construction. CAT has been a beneficiary. Luna: So what does Burry see that the market is missing? He's notoriously early sometimes — remember his GameStop short in 2020? Lucas: Right. He's been early before. But his thesis on Caterpillar seems to be about the cycle peaking. Caterpillar is deeply cyclical — tied to global mining, construction, energy. When those industries slow down, CAT earnings can drop fast. Luna: And Burry thinks we're at that inflection point now? Lucas: His filing shows a put option position — essentially a bet that the stock will fall. The notional value is around $70 million, which is a meaningful size for his portfolio. He's not just dipping a toe in. Luna: What's the timing angle? The market is near all-time highs — the S&P 500 just closed at 7,499, VIX at 16.45. It's not a fearful environment. Lucas: That's the puzzle Burry is leaning into. When everyone is bullish on a stock, the upside is already priced in. Caterpillar trades at about 22 times forward earnings — not astronomical, but above its historical average. And the earnings catalysts may be fading. Luna: Fading how? The infrastructure bill from a few years back is still being spent, and AI buildout isn't slowing. Lucas: Two things. First, China — Caterpillar has significant exposure to Chinese mining and construction, and China's economy has been uneven. Second, the AI data center buildout is real, but it's also a capex cycle that could peak in the next 12 to 18 months. Burry might be betting that when it slows, Caterpillar's earnings disappoint. Luna: So he's shorting the cycle, not necessarily the company. That's a different kind of bet. Lucas: Exactly. And if you look at the options market, Caterpillar's implied volatility is relatively low — the VIX on CAT is below its one-year average. That means the puts Burry bought weren't outrageously expensive. He's getting a cheap ticket to a potential downturn. Luna: But if the market keeps grinding higher, and CAT keeps riding the AI wave, he could lose money on time decay. Puts have an expiration date. Lucas: That's the risk. Shorting a stock that's in an uptrend is tough. But Burry has a track record of being early and being right eventually. The question for listeners is: does this signal something broader about the market cycle? Luna: Let's zoom out. The S&P 500 is up 1.9% in the last five days, the Nasdaq up 2.9%. Small caps are also strong — the Russell 2000 had its best first half in 35 years. The market is very risk-on. Lucas: And yet Burry is betting against a bellwether industrial. It's a contrarian signal. But one short position doesn't make a crash call. It's more like a hedge — he might see specific risks in CAT that don't apply to the whole market. Luna: What about the macro data? We've got GDP growth at 2.1% annualized, the 10-year Treasury at 4.38%, and the yield curve is no longer inverted — the 10-year is 30 basis points above the 2-year. That's typically a healthy sign. Lucas: Right, the curve is steepening, which usually means the economy is growing. But for a cyclical stock like Caterpillar, that growth might already be priced in. The market is forward-looking, and if Burry thinks the next six months show a slowdown in industrial activity, he's positioning for that. Luna: I want to bring this back to something practical for our listeners. Most people shouldn't follow Burry's trade directly — shorting stocks is risky, and options can expire worthless. But the lesson here is about thinking independently. Lucas: Absolutely. Burry is famous for ignoring the crowd. When everyone loves a stock, he asks what could go wrong. That's a mindset worth adopting, even if you never short a single share. Luna: And maybe that's the real value of this episode — not the trade itself, but the process. How do you evaluate a company like Caterpillar when it's at a high? What questions do you ask? Lucas: Let me offer a framework. First, look at the revenue drivers — for CAT, that's mining, construction, energy. Are those end markets growing or peaking? Second, look at valuation — 22 times earnings is not cheap for a cyclical. Third, look at insider activity — if executives are selling shares, that's a negative signal. Luna: Speaking of independent thinking — we do this show independently because of listeners who support us. If our money conversations have helped you think about a decision differently, you can chip in at buy me a coffee dot com slash fexingo. That's what keeps these episodes ad-free and focused on ideas like this one. Lucas: Yeah, it's a small group that makes it possible, and we're grateful for that. Now back to Caterpillar — one more data point. The company's order backlog has been declining in recent quarters, which could foreshadow softer revenue ahead. Luna: That's exactly the kind of detail Burry would latch onto. The backlog is a leading indicator for industrial companies. If it's shrinking, future earnings may disappoint. Lucas: And that's why he's short. It's not about hating Caterpillar as a company — it's about the timing of a cycle. If he's right, CAT could drop 20% or more. If he's wrong, he loses the premium on the puts. Luna: What's your take? Are you more inclined to agree with Burry, or do you think the bull case still holds? Lucas: I lean toward caution. The market has been strong, but the AI trade is getting crowded. Caterpillar is a high-quality company, but at these prices, the margin of safety is thin. I wouldn't short it, but I also wouldn't be buying here. Luna: So the lesson for listeners: be skeptical of stocks that have run up dramatically, especially if the reasons for the run-up may be temporary. That's the Burry playbook. Lucas: And always size your bets appropriately. Burry is a professional with deep pockets. If you want to express a bearish view, consider a small put position or just trimming your longs. Never bet the farm. Luna: Well said. We'll keep an eye on CAT and see if Burry's early call turns into another famous trade. Lucas: That's all for today. Stay curious, stay independent, and we'll talk next time.