‘Big Short’ Michael Burry Warns S&P 500 Is Overvalued, Poised to Slump
- Michael Burry cautioned US stocks are hugely overvalued and could plummet in price.
- “The Big Short” investor noted the S&P 500’s price-to-sales ratio has nearly doubled in 10 years.
- Burry has been raising the alarm on a historic market bubble, and predicting an epic crash.
Michael Burry, the investor of “The Big Short” fame, warned US stocks are heavily overvalued and poised to tumble in a now-deleted tweet on Monday night.
“Nigh perched with a multiple problem,” Burry tweeted, attaching a chart tracking the price-to-sales ratio of the S&P 500 equal-weight index. The ratio was below 1.0 for most of the 1990s and 2000s, but it has nearly doubled over the past decade to north of 1.9 today, the chart showed.
Presumably, Burry wanted to show the index is trading at nearly twice the revenue of its constituents — indicating the valuation multiples on America’s largest public companies have stretched to unsustainable heights.
The investor likely used the price-to-sales ratio because it’s more speculative than price-to-earnings, or price-to-book value. It compares a company’s market capitalization to its revenues, instead of its profits or net assets.
Burry is best known for his massive bet against the mid-2000s US housing bubble, which was immortalized in the book and movie “The Big Short.” He also paved the way for the meme-stock craze by investing in GameStop before its shares skyrocketed in January 2021, and made high-profile bets against Elon Musk’s Tesla and Cathie Wood’s flagship Ark Innovation ETF last year.
The Scion Asset Management chief has repeatedly sounded the alarm on excessive asset valuations, and predicted a historic market sell-off, in since-deleted tweets over the past 18 months.
“Greatest Speculative Bubble of All Time in All Things,” Burry declared in June. He also predicted “the mother of all crashes” that month, and cautioned the market was “dancing on a knife’s edge” in February 2021.
Moreover, Burry warned in June 2021 that the prices of bitcoin, meme stocks, and electric-vehicle companies had been “driven by speculative fervor to insane heights from which the fall will be dramatic and painful.”