Michael Burry, the investor who made his name betting against subprime mortgages before the 2008 financial crisis, appeared on Michael Lewis' "Against the Rules" podcast with some characteristically gloomy predictions. He discussed why he closed Scion Asset Management to outside investors, detailed his bearish position on Palantir Technologies Inc. (PLTR), and explained why he thinks the market is heading for a crash that will make 2000 look familiar.
The Passive Investing Problem
Burry's decision to close Scion wasn't just about market timing. He pointed to a structural shift in how capital flows through markets: the rise of passive investing through index funds. According to Burry, over 50% of market capital is now "passive" money, with less than 10% managed by investors actually focused on long-term value.
This concentration of capital in passive strategies has, in his view, eliminated price discovery and driven valuations to unrealistic levels. The result? When things turn south, everything falls together.
"I think that we are in a bad situation in the stock market. I think the stock market could be in for a number of bad years," Burry told Lewis.
He elaborated on the coming downturn: "When the market goes down … the whole thing is just going to go down," making it extremely difficult "to be long anything and be safe."
But there's also a personal dimension to his decision. Burry admitted he didn't want to repeat the experience of managing outside money during a crisis. "I didn't want to go through that with investors again," he said, referring to the pressure and doubt he faced from clients while waiting for his 2008 short position to pay off.
Shorting the AI Bubble
Burry sees the current AI boom as a prime example of market excess. He specifically called out Palantir and Nvidia Corp. (NVDA) as "the two luckiest companies on the planet," pointing to their valuations as hallmarks of bubble behavior.
He's not just talking about it. Burry revealed he holds two-year put options on Palantir, a timeframe he considers sufficient to express his bearish thesis.
His critique extends beyond simple valuation metrics. Burry reiterated concerns about questionable accounting practices and heavy stock-based compensation, which he argues disguise less-attractive balance sheets and paint an unrealistically rosy picture of these companies' true financial health.
The AI bubble "looks an awful lot like the .com bubble," he concluded, noting that the market is already "at levels of prior peaks."
One Bright Spot
Despite painting a bleak picture for most of the market, Burry isn't entirely pessimistic. He identified healthcare stocks as genuinely undervalued and worth buying, describing the sector as "really out of favor" at the moment.
His move to trade primarily with personal capital rather than managing outside money wasn't a retreat from markets. It was a strategic repositioning that gives him the freedom to navigate what he views as one of the riskiest, most overvalued markets in modern history without the constraints and pressures that come with managing other people's money during turbulent times.
