Burry warns that American households now have more wealth in stocks than in homes, a rare signal that last preceded the multi-year bear markets in the late 1960s and 1990s.
Summary
- Wells Fargo-Bloomberg data shows that household equity wealth now exceeds real estate, a pattern last seen in bear markets in the late 1960s and 1990s.
- Burry blames zero interest rates, stimulus, inflation, AI speculation and gamified trading for stocks soaring well above fundamentals.
- He says passive money now dominates the markets and warns that a future sell-off could result in a deep, multi-year downturn in US stock markets.
Michael Burry, the investor known for predicting the 2008 financial crisis through short positions on mortgage-backed securities, has issued a warning about the US economy based on historical asset allocation patterns.
The former head of Scion Asset Management shared data from Wells Fargo and Bloomberg showing what percentage of average U.S. household wealth is allocated to real estate versus stocks. According to the data, U.S. households currently hold a greater share of their wealth in stocks than in real estate, a situation that has historically preceded prolonged bear markets.
Michael Burry warns about household debt
“This is a very interesting graph, as household wealth exceeding real estate wealth only happened in the late 1960s and late 1990s, the latter two times when the subsequent bear market lasted years,” Burry said in a social media post.
Burry attributed the current allocation to several factors, including nearly a decade of zero interest rates, pandemic-era stimulus payments, high levels of inflation not seen in fifty years, and a shift toward higher interest rates on government bonds. He noted that stocks have outperformed real estate, despite home prices rising 50%.
The investor cited the gamification of stock trading, increased gambling behavior and investments in artificial intelligence as contributing factors. He noted that major corporations and political entities have supported trillions of dollars in planned AI-related capital investments.
In a recent interview on the Against the Rules with Michael Lewis podcast, Burry discussed the potential impact of passive investing on market dynamics. He stated that passive money now represents more than 50% of investment funds, with less than 10% actively managed by long-term oriented managers.
“Now I think the whole thing is just going to collapse. And it would be very difficult to be long stocks in the United States and protect yourself,” Burry said in the podcast, contrasting the current environment with the market crash of 2000, when certain stocks remained resilient during the Nasdaq’s decline.
Burry rose to prominence for his successful bet against the housing market before the Great Financial Crisis of 2008, a story later depicted in the book and film “The Big Short.”
