Burry is well aware of this, he has written about how passive investing is contributing to this problem.
> Burry is well aware of this ...
Well, no he isn't well aware of this, apparently. He's been right in 2008 but he has been spectacularly wrong for the last 5 to 10 years, like shorting Tesla or Nvidia at the worst possible moments - and eventually closing his hedge fund...
He just didn't take to heart that the market can stay irrational for longer then he could stay solvent.
Both Tesla and Nvidia valuations are irrational from a market perspective. Doesn't mean they'll crash within the next months or even years, but it wouldn't be surprising if they did
Different levels though. NVDA P/E is 31 which is slightly high but not crazy. The AI datacenter investments might dry up and then earnings drop, but who knows. So it's defensible, at least.
TSLA is in another universe though, P/E of ~360!
I am convinced spacex will acquire TSLA just to avoid seeing it crash.
It has been broken since ~2008 (ZIRPs, etc.) and has really gone off the rails since BTC and memestocks have taken off. Now everything's a memestock. It's all vibes-based.
There are no fundamentals.
There is very low signal to the noise.
Isn’t this the exact same sentiment from the late 1920s when people were making “insane, life changing” money by buying equities on margin?
It may well though, because now we have an automatic buy from the government to 'fix' the market if it 'breaks'. The line goes up.
The cynical nihilists have capitulated to the stock market always going up, that has to be flashing a very bearish warning sign.
Humans are prisoners of the present moment, but just think what a market is. What does it really mean as it accumulates disorder for decade plus.
Can the market just continue to deviate from a markets actual purpose forever? Hell, can anything in this universe exist in a particular state forever.
If it can’t, then it means at some point things have to go in the other direction. Use your imagination what that means for the largest most complex (man made) system in the history of this planet.
I wouldn't advocate for betting against any of this. But I took my money out of the stock market a few months ago.
Shorting is too risky and depends a lot on timing. Staying clear of this mess is a safer bet.
To make a parallel, it's not like disinformation didn't exist in the past, but nowadays with social media, llms and image gen tools and a few armies of bots, you can spread whatever bullshit you want at lightning speed.
- ZIRP and similar policies essentially forced everybody to get into the stock market if they wanted to tread water.
- Then people saw with BTC (and similar, e.g. ETH,) that these so-called "market investments" don't need to be rooted in any kind of fundamental. They can be weightless tokens. This, in short order, lead to silly things like memestocks and NFTs -- but they also twisted the hell out of the markets. The valuation of TSLA has long been an example of this.
Then there's inflation, which has inflated stock market prices as much as it has inflated anything else. And there are toothless regulators who would deserve our sympathy if they weren't so lackadaisical. There are also llms, social media, etc. -- but those feed on the above.
The market can remain irrational longer than you can remain solvent.
A long-term principle that I think does still apply.
“In the short run, the market is a voting machine, but in the long run, it is a weighing machine”
- benjamin graham
- creative accounting (Enron, Worldcom)
- zero-interest rate policy
- SPAC IPOs
- exotic securitization (credit default swaps)
...that made valuation more opaque over time. The age of value investing is long gone.
Nah, it might appear so, but the moment of reckoning always arrives, always. Like eventually, it arrives.
Its a different argument, that most people themselves are not long-term investors, in that case of course, such a thing doesn't even apply to you.
I think Fidelity did some research that the most profitable accounts belonged to dead people. The proven formula is to pick the best stocks out there, pyramid upwards and be patient.
As long as companies can make it into the index, passive investors will funnel money into buying stock of these companies, no matter how badly these companies are run.
The trillions that mechanically and automatically flowed into index funds in pensions and 401k accounts must mechanically and automatically flow right back out after retirement, right?
Especially when younger generations are too poor to save for retirement and most companies don't offer pensions to younger workers any more, where will the inflows come from to offset the outflows?
Also, a significant part of the stock market is driven by foreign investment. The US has few capital controls and is an easy market for foreigners to invest in. Around 1/3rd of US stocks are owned by foreigners.
Even if the older generation sells during retirement, foreign investment will be more than enough to replace it.
That in turn means that a lot of the invested money goes towards ultra-safe stuff like government bonds, which is about the only thing keeping the US government afloat (if there is always a healthy amount of buyers, you can go into debt no matter if it is sustainable), and what remains of the hundreds of billions of dollars that flow into these funds each month (and [1] is just pension funds, not 401k and other forms of privately-held retirement assets) and is not earmarked for such safe asset classes spills onto the ordinary stock market, i.e. S&P 500, NASDAQ et al.
And here comes the trap with low-fee investment funds... when the ETF or pension fund's policy is "we'll track NASDAQ 100" and SpaceX enters NASDAQ 100, they have no choice than to shift billions of dollars worth of assets into SpaceX at whatever is the market price at that point. No matter if the fund managers think that the valuation is excessive, if SpaceX has a long term viable business strategy, nothing can prevent this.
To make it worse: once in NASDAQ 100, you as a company have no incentive to behave. You cannot be punished by free-market means (aka going under), simply because your inclusion in the NASDAQ 100 means that any significant loss in value would wipe out way too much value in pension funds.
The US' idea to completely tie pensions to the stock market will fry the US economy alive. We've already seen this during and past Covid... first, lockdowns got relaxed because it fried the stock markets too heavily, thus giving us four massive waves until vaccine distribution caught up, and then remote work that was allowed in many countries by law got slowly axed because REITs (real estate investment trusts) got screwed by companies quitting expensive rental contracts for office space. But that pales in comparison to what we'll see when the AI bubble pops.
[1] Q1 20: 23T, Q1 21: 26T => about 3T/y, 250B/mo, per https://fred.stlouisfed.org/series/BOGZ1FL594090005Q
by "anymore" I assume you mean for a few decades now