JOHN BURBANK: 'This is the next one...'

John H. Burbank III, the chief investment officer of $4.1 billion Passport Capital, is warning of another crisis.

This time, it will be a liquidity crisis: If the market sells off again there simply won't be enough participants to take the other side of the trade.

"This is the next one-I guess I'd say this is the fourth one in 20 years. It doesn't happen very often, and it's always different. But I think the market is now going to discover just how much liquidity is in the market," Burbank said on RealVision Television, a subscription financial news service.

In that situation - the market will face a precipitous decline if even a small amount of funds look to sell.

The models didn't work

Burbank told RealVision that he thinks the Fed has learned that their models don't work, and that it's looking for a way out of its bond buying program - called quantitative easing.

"They didn't have the GDP/economic effect. I think they realize the more they do this, the more they can't get out of it, and the more they pervert markets. And I believe they want to get out of it."

Without sustained GDP growth, the effects of quantitative easing will wear off.

"It's GDP growth which has been the shortfall constantly, both in the US and globally."

'Path of inevitability'

Burbank, who resides in San Francisco, launched his hedge fund in 2000 toward the end of the dot-Com bubble. Before that, he worked at hedge funds in the Bay Area where he focused on emerging markets during the Asian Financial Crisis. In 2007, he bet against the multi-trillion-dollar subprime housing market. One of his funds ended that year up 219%.

Passport Capital is among the best-performing hedge funds this year, according to data compiled by HSBC. Passport's special opportunities fund was up 30% through the first eight months of the year. Passport's global strategy fund was up more than 14.5% during that time.

What he's seeing now is something that's never happened before.

"Divergence, or secular change, are things that have never happened before, that is really the signal in markets. It's when things go a direction that is not reverting to the mean. It's going in the path of inevitability."

It's a house of cards, which appears to be fine until it isn't...

Go to RealVision TV for the full interview»

Watch the teaser video on RealVision here»