Michael Burry Warns Household Stock Frenzy Mirrors Past Bear-Market Turning Points
New York — Michael Burry, the hedge fund manager who became famous for betting on the housing bubble in “The large Short,” has a clear warning about the current U.S. stock market frenzy.
Burry recently posted on social media about data revealing that American households have put more of their net worth into stocks than into real estate. This has only happened twice before, in the late 1960s and late 1990s.
Burry , “This is a fascinating chart because household stock wealth has only been higher than real estate wealth in the late 1960s and late 1990s, the last two times the bear market lasted years.” The figure, from Wells Fargo and Bloomberg, shows a significant change in household balances.
Even if home values have risen 50% over the last few years, equities have outperformed real estate, making stocks the most valuable part of household wealth.
Things That Are Making The Stock Market Boom
Burry says that this exceptional allocation is due to a combination of economic and behavioural factors. He talks about how interest rates have been at zero for almost 10 years, how the government gave out huge stimulus packages during the pandemic, how inflation is at levels not viewn in 50 years, and how have now risen.
Apps and platforms that make stock trading more like a game, a rise in gambling-like behaviour among retail investors, excitement about artificial intelligence, and trillions of dollars in expected AI capital expenditures by businesses and governments are all contributing factors.
Burry thinks these factors have pushed stocks far beyond their fundamentals, making the market more like past bubbles.
The Danger of Passive Investing
Burry is about the rise of passive investing, which he estimates now makes up more than half of all investment funds. On the other hand, less than 10% of funds are actively managed with a long-term goal.
He worries that this change in structure could make any future slump worse. Passive methods that are linked to indexes tend to purchase high and trade low a lot when the market is volatile. This might turn a normal trade-off into a long-term disaster.
Burry said, “I think the whole thing is going to come down now.” “And it would be tough to protect yourself while holding stocks in the.”
In Burry’s opinion, today’s market, which relies on passive investments, doesn’t have as many secure places to hide as during the dot-com meltdown of 2000, when some equities remained valuable even as the fell.
Historical Echoes and What They Mean for the Market
There are clear parallels between the late 1960s and the 1990s: in both periods, households shifted their wealth into stocks during multi-year bear markets.
Burry’s warning is a voice of caution in a market that is otherwise very positive, as investors pour money into broad indices driven by excitement about and simple money. His past work in identifying systemic threats, such as the 2008 subprime catastrophe, adds weight to his current conclusion.
Now, people in the market are if this family stock craze is another crucial turning point, with passive flows making any reverse stronger and longer. Burry’s study is the only one that explicitly links contemporary situations to past scary times, even though no other analysts are cited for this precise warning.
