Michael Burry made headlines last summer when he warned that the stock market was in the midst of a “great speculative bubble.” In an interview, Burry cautioned investors stating that those buying into the hype were in for a rude awakening, predicting that the market would soon experience the “mother of all crashes.”
While some dismissed Burry as a doomsayer, his warnings proved prophetic, and the market did indeed experience a sharp correction in the fall. Since then, Burry has been vocal about his belief that the market is still overvalued, and he has urged caution for those who are considering investing at this time.
It’s been a tough year for investors, with the stock market swinging wildly and many traditional safe havens like bonds and gold losing their muster. So it’s no surprise that some people are feeling just a little bit anxious about the state of the world.
Burry’s Analysis
Burry recently sent a tweet hinting that doomsday may finally be upon us. The accompanying chart showed the S&P 500 tumbling 18% from its December peak, despite several rallies this year.
Naturally, Burry’s tweet set off a firestorm of speculation, with many wondering if this is really the beginning of the end.
Based on how previous collapses have progressed, Burry said in May that the S&P 500 may plunge as low as 1,900 points, or another 53%, over the next several years.
Most investors believe that it is only a matter of time before the stock market collapses. They say that the signs are all there; it is just a matter of when the right combination of factors comes together to trigger a massive sell-off. They point to the high valuations of many stocks, a large amount of debt that corporations are carrying, and the geopolitical tensions around the world as evidence that a crash is coming.
However, Burry said that he has been mocked by his friends for years for his belief that the stock market will collapse. He argues that the market is as stable as people think and that there are no safety nets in place to prevent a crash. Burry believes that the recent crashes were simply the start of a larger bear market.
Thoughts of Jeremy Grantham
Jeremy Grantham, an investor and market historian, has warned of an impending market crash in a research note. Like Burry, he compares the current market conditions to those preceding the great depression and warns that the worst is yet to come.
Grantham cites overpriced assets, commodity-price shocks, and the Federal Reserve’s response to inflation as key factors in his analysis. While acknowledging that each market cycle is unique, he believes that history will repeat itself and advises investors to prepare for the worst. Given Grantham’s track record of accurate predictions, his latest warning should not be ignored.