Michael Burry Warns that History will Repeat Itself

Michael Burry warns that a shift in the structure of household wealth could make the stock market vulnerable to a prolonged and severe downturn.

The investor, who rose to fame with The Big Short, points to a Wells Fargo chart showing that U.S. households are currently holding a larger share of their net worth in stocks than in real estate. This is a rare condition that has occurred only twice before.

According to Burry, a similar situation has occurred only at the end of the 1960s and the late 1990s. In both cases, the subsequent bear market lasted for years. He shared this in a post on the social media platform X, emphasizing the historical risk.

Burry, who has previously warned about a bubble linked to the boom around artificial intelligence, refers to himself as “Beary Burry” because of the bearish signal. According to him, when stocks take a leading role in household balance sheets, market sell-offs are more quickly transmitted to consumer sentiment and spending. This can amplify losses during a potential downturn.

Wells Fargo, however, presents a different perspective. According to the bank, the same chart explains why policymakers are unlikely to allow a deep and prolonged bear market.

The financial institution notes that a “K-shaped” economy driven by the wealth effect means that a significant market decline would likely lead to an economic slowdown as well. This is a scenario that neither the Federal Reserve nor the government could afford, especially on the eve of midterm elections.

According to Wells Fargo, the risk–reward ratio for equities in the short term remains relatively favorable, as the economic and political cost of a major market crash is too high.