Michael Burry raised the possibility that the U.S. stock market is nearing a peak and warned that a crash on the scale of the 1987 "Black Monday" could arrive. Michael Burry is the real-life protagonist of the film "The Big Short" and a professional investor who foresaw the global financial crisis. While the New York stock market continues its steep rise, structural risk factors inside the market are piling up, he assessed.
On the 4th (local time), according to foreign media, Burry wrote in a recent Substack post that the current U.S. stock market has approached a major peak. He said, "There is still a possibility that a sudden downturn like the one that occurred in 1987 will arrive." Black Monday on Oct. 19, 1987, was the worst crash in U.S. stock market history, with the Dow falling 22.6% and the S&P 500 plunging 20.5% that day, hitting financial markets worldwide.
Burry analyzed that the rise in major indexes is intensifying the market's instability. As the Standard & Poor's (S&P) 500 hit a record high and new money continues to flow in, he said low-volatility-based volatility-targeting funds and momentum strategy funds are expanding leverage. He analyzed that rising share prices and increasing leverage are spurring automated buying strategies, and if the market turns lower, a wave of leveraged selling could pour out and magnify the decline abnormally.
Burry also expressed skepticism about the sustainability of the funding structure propping up the artificial intelligence (AI) boom. He assessed that it will be difficult for the flow of funds supporting demand for AI infrastructure investment to continue.
Burry said that despite the New York stock rally, he has not unwound and continues to hold short positions on major tech and semiconductor sectors. The short targets he disclosed include the iShares Semiconductor exchange-traded fund (ETF), as well as Nvidia, Micron Technology, Tesla, Palantir, Applied Materials, and Caterpillar.
He also said he is currently making profits on most of his short positions except for Nvidia. He said, "I have firm confidence in the long-term outlook for those short positions," but added, "If the market moves entirely against the bets, I am prepared to close positions to minimize losses."
He urged particular caution for retail investors approaching short selling. Burry advised, "Short selling is by no means a strategy suitable for every investor," adding, "I am someone who needs to short, but it is desirable for individual investors not to engage in short selling."