Michael Barry attends the New York screening of ‘The Big Short’ at the Ziegfeld Theater on November 23, 2015 in New York City.
Astrid Stawiarz | Getty Images
Michael Burley said current market conditions have reached historically dangerous extremes reminiscent of past speculative bubbles, and called on investors to reduce their exposure to high-flying tech stocks.
The celebrity investor, best known for predicting the 2008 housing crash, said investors should “reject greed” as the craze for artificial intelligence and momentum trading drives up valuations sharply.
“The easier path for most people is to simply reduce their exposure to stocks, especially tech stocks. For stocks that move parabolically, reduce your position almost completely,” Barry wrote in a post on Substack on Sunday.
Burley has been warning for months that the stock market’s obsession with AI increasingly resembles the final stages of the dot-com bubble. Last week, he compared the recent performance of the Philadelphia Semiconductor Index (SOX) to its rally before the March 2000 tech crash, saying the current environment resembles “the last months of the 1999-2000 bubble.”
Mr. Barry said he maintains a “heavy leveraged short position” in a portfolio of companies he believes are undervalued in the downturn, a strategy similar to the one he used in 2000.
However, Burley warned that betting directly on a bull market through short selling is risky and impractical for most investors, especially as the costs of bearish trading become increasingly high.
“Short selling is not the answer. It’s not something most people should do,” he said. “Currently, buying put options is generally expensive, and shorting a stock directly can still cause significant pain.”
The comments add to the debate on Wall Street about whether the AI-driven rally in U.S. stocks is out of touch with fundamentals. Despite ongoing wars in the Middle East, major stock indexes have repeatedly hit new highs as investors flock to chip makers and giant corporations.
“The objective is to raise cash and be prepared to do so when it makes more sense to do so,” Burley wrote. “History tells us that even if the party lasts another week, month, three months, or even a year, the solution will be to bring prices down significantly.”
