'Minutes before a bloody car crash': Burry predicted a new stock market crash

Michael Burry, the investor who was one of the first to predict the global financial crisis and made money from it, has declared that a stock market crash is inevitable. In a recent post on the Cassandra Unchained blog, he compared the current stock market situation to the dot-com bubble of 2000 and the Great Depression of 1929, calling Wall Street "the scene of a bloody car crash minutes before it happens." According to Burry, tech companies are extremely overvalued and investors should lock in profits and go into cash.

Burry calls the current growth of technology indices unprecedented and compares it to the final stages of previous market bubbles. The investor notes that the index of chip-related companies recently reached an all-time high as a result of almost vertical growth. Shares of semiconductor makers such as Samsung Electronics, Applied Materials and Viavi Solutions have seen similar dynamics. "My only thought right now is to let people know where we are," Burry writes. "We are witnessing history, and that doesn't bode well for the stock market," he states.

According to the investor, the market multiples are seriously distorted: if the NASDAQ 100 companies' reports are cleaned of accounting assumptions, the real capitalization-to-earnings (P/E) ratio, according to his calculations, would be 43, not 30, as is commonly believed on Wall Street. Burry points out that standard reporting rules allow companies to exclude employee stock-based compensation and merger costs as expenses, making the fastest-growing players' paper earnings look 50% higher than their actual results.

He also warns of the risk of massive revisions to past earnings, recalling Cisco's situation in 2001-2002. The IT giant entered into rigid long-term contracts with suppliers to buy huge quantities of components that went unclaimed after the collapse of the dot-com bubble. As a result, Cisco had to take a gigantic write-down, effectively wiping out the gains of its most profitable years. Now, Nvidia's billion-dollar upfront contracts with chip supplier TSMC pose a similar threat, Burry pointed out.

There may not be a precise reason for the collapse: according to the investor whose play against the U.S. mortgage market formed the basis of the plot of the movie "The Downgrade", the biggest crashes in history often had no clear catalyst. That said, he emphasizes that the denouement may not come tomorrow. Even if the stock market euphoria lasts "another week, month, quarter or year," it will eventually end in a price crash, Burry believes. In his opinion, there will be no safe harbors this time: when the trend reverses, it will be extremely difficult for most stocks to avoid falling.

"If you've had the skill or luck to hold stocks that are skyrocketing right now, or if you've accumulated large profits in stocks with strong market gyrations, now is a good time to consider locking them in," Burry advises. "This is a moment to abandon greed and recognize: what's going on right now looks extreme, and the historical precedents are pretty dismal." His main point is to go into cache and wait for more rational prices to buy. Burry recommends to sell almost all securities with "parabolic", i.e. abnormally fast growth.

He suggests locking in profits in "dear to my heart" stocks and making an inexpensive bet on continued growth - via long-term call options that could benefit from a further rally. "I'm a meme now because of how many times I predicted the crash," he admits, comparing himself to the boy who cried wolf. "In the end, what happened? The wolf came, but no one listened anymore," summarizes the legendary shortstop.

This article was AI-translated and verified by a human editor