Scion Asset Management hedge fund manager Michael Burry has social media users scratching their heads about a Feb. 9 tweet.
Burry's Twitter (TWTR) display name Cassandra B.C. recalls Cassandra of Greek mythology, the priestess and daughter of the Trojan King Priam who is fated to always tell the truth and never be believed.
"It's time memesters look up what a death spiral convertible is," tweeted @michaelburry.
By memesters, Burry appears to be referring to investors who buy and sell meme stocks based on sentiment on the internet and social media.
Well-known meme stocks have included GameStop (GME), Bed, Bath & Beyond (BBBY) and cinema chain AMC Entertainment (AMC).
A death spiral convertible is available at a discount to the share price for a set dollar amount instead of a number of shares. It is used by companies that are having difficulty getting financing.
"The further the stock falls, the more shares you get," writes Nasdaq.
The set of Twitter users who read and post content on finance and the stock market, sometimes referred to as fintwit, are busy figuring out the significance of Burry's comment.
"Enron issued large amounts of death spiral convertibles, which helped fuel its rapid growth but ultimately contributed to its downfall," wrote @birdseyeball. "Lehman Brothers, one of the largest investment banks in the world, issued death spiral convertibles in the lead up to the 2008 financial crisis."
"Memesters should also look at market breadth," tweeted @tomthetrader1. "It is not much different vs the market top in 2022 and the bear rallies that followed."
"If you remember what happened with $LUNA and $UST, this would basically be the same," wrote @anishkmitra. "More and more LUNA was issued to back UST, which further depressed the price of LUNA to zero. I’m guessing he’s referring to $BBBY where new dilution from the huge convert deal would 0 the price."
