Mark Spitznagel believes Michael Burry has identified the correct risk, albeit at an inconvenient moment.
The founder of Universa Investments told Business Insider that Burry is correct to question the massive capital flowing into AI chips and data centers.
Burry May Be Right, but Early
Burry, renowned for betting against the housing market prior to the 2008 financial crisis, has repeatedly challenged the economics underpinning the AI boom.
He has accused major cloud providers of employing aggressive accounting as they invest billions in Nvidia chips and servers. Burry argues that companies like Microsoft, Google, Oracle, and Meta are extending the useful lives of this hardware, thereby spreading depreciation costs over more years and artificially strengthening current profits. He estimates these accounting choices could understate depreciation by approximately $176 billion between 2026 and 2028.
Spitznagel agrees that the warning signs are genuine. He also recognizes that expensive markets can continue rising long after skeptics identify the problem.
He believes the economy is “rolling over” as the effects of previous interest-rate increases work through the system. However, he sees no immediate trigger for a collapse. In his view, Burry “will get the timing wrong.”
Spitznagel anticipates “one more truly massive, risk-on, euphoric rally” before the market reverses. He believes that once this surge concludes, investors could encounter a crash more severe than any they have ever experienced.
“I will be the most prominent bear you hear from in the coming months,” he stated. “Just not right now.”
Selling too early risks missing a final surge, while remaining heavily invested in AI-driven companies could expose a portfolio to a devastating sudden reversal.
A difficult dilemma for uninformed investors.
Being correct about a bubble does not guarantee profits from betting against it. Consider selling a $100,000 portfolio today, anticipating a crash.
A few weeks later, the market climbs by 50% instead. Had you remained invested, your portfolio would have risen to $150,000. If a subsequent 30% plunge occurred, you would still be left with $105,000.
This leaves you $5,000 behind, excluding any interest on cash, taxes, or trading costs.
Identifying a bubble and profiting from it are two distinct achievements. You must identify the danger and endure until the market agrees with you, or possess the ability to predict the future.
Hedging Without Copying a Hedge Fund
Universa specializes in tail-risk protection. Its funds make small bets that typically lose money in normal markets but yield enormous returns when a rare disaster strikes.
According to an April 2020 report based on Universa’s client letter, its tail-risk strategy generated a reported 4,144% return during the first quarter as COVID-19 devastated markets. The letter noted that a portfolio with 3.3% invested in Universa and the remainder in an S&P 500 tracker would have gained 0.4% in March, even as the benchmark fell over 12%.
Most individuals cannot replicate this strategy at home. It relies on sophisticated options trades that may expire worthless repeatedly—mistakes the average American simply cannot afford to make.
Simpler strategies can make a portfolio less dependent on the next move in technology stocks, though none will block every loss. The goal is to ensure all your money does not react to the same market shock simultaneously.
Article Sources
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Business Insider (1); Reuters (2); New York Post (3); Business Insider (4); Willow Wealth (5)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
