Burry Warns Selloff Like 1987 Crash Could Hit Stocks

Investor Michael Burry warned that the current rally in US stocks could end in a selloff similar to the 1987 market crash, even as the S&P 500 trades at a record high. Burry is best known for predicting the 2008 global financial crisis and was the real-life inspiration for the film “The Big Short.”

Burry told CNBC on August 4 that he still believes the index may be nearing a major top and that a decline like the one seen in 1987 could follow. That was the year of Black Monday, when US stocks plunged about 20%.

Burry has repeatedly warned of an artificial-intelligence bubble. He said new money is likely to flow into the market when the S&P 500 reaches fresh highs, creating a self-reinforcing cycle in the rally.

He also said volatility-targeting funds are effectively forced to add leverage when volatility remains low. Rising share prices and subdued volatility can spur automatic buying by systematic strategies, allowing leverage to build and potentially magnifying losses once a selloff begins. The three major US stock indexes closed higher for a fourth straight session that day.

Burry also appears to be maintaining short positions in several names, including the iShares Semiconductor ETF (SOXX), Micron Technology, Nvidia, Caterpillar, Palantir Technologies, Tesla and Applied Materials.

He said he remains confident in those positions over the long term, but would close them to limit losses if the trades move against him. He added that he is still profitable on every short except Nvidia.

Han Myung-hyun, Hankyung.com reporter wise@hankyung.com