The Big Short’s Michael Burry warns of Wall Street crash
Jessica Menton
Michael Burry, famous investor Big ShortHe warns that the Nasdaq 100 Index is heading for a dramatic reversal after a “parabolic” rally that sent tech valuations to unsustainable levels and Wall Street to record highs.
In a post on Substack, Burry said the market is similar to the peak of the dot-com bubble just before it burst, noting in particular that the rapid bounce in chip stocks has pushed the Philadelphia Stock Exchange Semiconductor Index up nearly 70 percent since the end of March.
By his own count, he said, the Nasdaq 100 is trading at 43 times earnings — well above the nearly 30 times implied — because “Wall Street may be overestimating the earnings of our fastest-growing, most valuable companies by more than 50 percent.”
“We are witnessing history. This is not a good thing in the stock market,” Burry said. He likened it to “a bloody car crash scene minutes before it happens.”
Burry is among many market watchers voicing concerns about the boom in artificial intelligence spending by Alphabet, Amazon.com and other big tech companies. While the US war against Iran threatens to both slow down growth and fuel inflation by raising oil prices, this has pushed the indices to record levels.
Analysts at Sundial Capital Research led by Jason Goepfert underlined the scope of the rally, saying it would be only the fourth time the S&P 500 has hit a record high while only 5 percent have fallen from 52-week lows. Data compiled by Bespoke Investment Group show that the Philadelphia semiconductor index has risen this far above the 200-day moving average only two other times: in July 1995 and March 2000, at the height of the internet bubble.
Burry advised against shorting stocks, given the cost of put options and the risk of getting burned by ill-timed trades.
Without going into further detail, he said he held a “significant leveraged short position” against a portfolio of companies he deemed “depressed and cheap” and that he planned to “lighten companies” that did not meet the “strictest valuation requirements.” He recommended taking profits from the recent rally and reducing exposure to stocks in general, especially those in the technology sector.
“Even though there appears to be more time to move up, anyone lucky enough to make these parabolic moves by not selling is betting that they can jump at or near the top,” he wrote.
“History tells us that even if the party continues for another week, month, three months or year, the solution will be much lower prices,” he said.
“We are entering that rarefied atmosphere, so extreme that the consequences will be inevitable no matter where it hides.”
Bloomberg
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