An investor who capped the Great Financial Crisis of 2008 by shorting mortgage-backed securities is issuing a new warning about the U.S. economy.
Former Scion Asset Management head Michael Burry shares a chart from Wells Fargo and Bloomberg showing the percentage of the average American household’s net worth allocated to real estate and stocks.
Data appears to show that American households have more net worth in stocks than real estate, which Burry said has sometimes led to bear markets in the past.
“This is a very interesting chart, as household stock wealth being greater than real estate wealth only occurred in the late 1960s and late 1990s, the last two times the ensuing bear market lasted for years.
Beary Burry.
The investor further explains:
“In this case, I think the chart explains the current situation very well. After nearly a decade of zero interest rates, trillions in pandemic helicopter cash, the highest inflation in 50 years, and a new paradigm of higher Treasury rates for the first time in 50 years, stocks have emerged victorious even from home prices that are up 50%.
The reasons for this are many, but certainly include the gamification of stock trading, problem gambling in nations due to their own gamification, and a new ‘AI’ paradigm backed by trillions of dollars of planned and ongoing capital investments backed by our richest companies and the political establishment.”
In a recent interview on the Against the Rules podcast with Michael Lewis, Burry says the stock market could enter a years-long bear phase due to the growth of passive investing.
“Today it’s all passive money. And it’s a lot. It’s more than 50% passive money. There are index funds… Less than 10% of the money, some say, is actively managed by managers who really think about stocks and in any kind of long-term way.
And I think the problem is in the United States, when the market falls, it’s not like in 2000, where there was another group of stocks that were being ignored and that will go up even if the Nasdaq crashes. Now I think everything is going to collapse. And it would be very difficult to hold long positions in stocks in the United States and protect yourself.”
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Image generated: Halfway through the trip
