Dow Rockets but ‘Big Short’ Recession Oracle Warns: ‘It’s a Bubble’
Don’t be fooled, the inflated stock market is a bubble, according to Michael Burry.
Burry, portrayed by Christian Bale in the movie The Big Short, famously predicted the housing bubble and subsequent recession in 2008. His biggest concern right now is passive investing in index funds, like Dow Jones exchange-traded funds (ETFs). Speaking to Bloomberg, Burry didn’t offer a timeline for the collapse but warned: “Like most bubbles, the longer it goes on, the worse the crash will be.”
It’s “very much like the 2008 bubble”
Despite the spirited rally in stocks this week, Michael Burry sees a different outcome. He said the true valuation of the stock market is completely distorted by the trillions of dollars flowing through index funds. A total of 50 percent of stock allocations are now in passive funds. In other words, Wall Street is no longer picking stocks based on rational, fundamental valuations. Instead, they’re allocating trillions to passive funds which track the entire market as one.
Burry famously saw the housing bubble before anyone else and profited by shorting the CDOs. In the same way that CDOs disguised the true values of US mortgages, today’s ETFs disguise the true valuations of the underlying stocks.
