AI High Flyers: Burry Sounds the Alarm

Michael Bury versus the AI High Flyers. A legendary win can become a dangerous lens. Michael Bury is back with a bearish swing at the AI leaders. Now, if you don't remember him, he's the guy that the movie the Big Short was based on. He's the guy who basically called it correctly that we were going to have a massive crash back in the aughts. 100% on the money back then and perceived, rightly so, as being a brilliant guy. Well, he's back. He disclosed put options totaling about $1 billion against Nvidia and Palantir. The pitch is simple. If there's an AI bubble, those bets could pay off big. The caution is simpler. Don't panic. Sell just because a celebrity bear is short. Since his housing market triumphed nearly 20 years ago, buring has issued crash calls that were urged early or wrong repeatedly. He shorted Tesla in 2021 and later exited while tech kept running. The recurring issue is an intellect. Timing One spectacular win creates a halo. Confirmation bias kicks in and everything starts to look like the next Big Short. Don't let someone else's legend set your risk. So what's the real message here? The guy who is behind the Big Short, the guy who got it right with the real estate bubble in 2008, is now saying, we're going to have an AI crash. Should you listen to him and sell everything? Not necessarily. He's been wrong almost constantly on all of his predictions ever since. Often get it right once and they continue making that same call for the rest of their career. Like Dr. Doom. Let's dig a little bit deeper here. What does this really mean? I just mentioned the doctor Doom. That's Nouriel Roubini, another person who got it right in the 2008 housing crisis. He's been predicting recession and crash ever since. So this happens frequently. And it, and I'm fascinated by it as a communications issue because communicators, people in the media, they see someone who's famous, they see someone who got it right, they're attracted to someone famous like this. They're also really attracted to someone who says something scary, saying, we are going to have a stock market crash. Sell. Everything is scary. It's a great headline and it's much more interesting than saying, okay, the economy is going to sort of stay status quo and not go up more than 5% or down 5% in the next. If you say that, if you're an economist, if you're a Wall street wizard, you're not going to get any media attention. So These things become self reinforcing loops. The worst example of this of all time though, is the author of Rich Dad, Poor Dad, Robert Kiyosaki. He has been predicting massive, massive recessions pretty much every year since 2008. He's been wrong every time. Now, at some point, will he be right? Okay, but you shouldn't get credit for being wrong, you know, 19 out of 20 times and being the proverbial broken clock. That's right occasionally. And so that is the problem. Could he be right? Absolutely. He could be right. Many, many wise, thoughtful people suggest we are in an AI bubble right now. There's no doubt about that. But the issue was always, when does the bubble burst? Those of you old enough to remember the dot com bubble will well remember that in 1997 a ton of people were saying we're in a tech bubble. This whole Internet thing is a giant bubble. It's going to burst, run. And if you follow their advice, you lost out on a lot of money, a lot of upside, because the market didn't burst in 1997. It went up, it went up in 1998, it went up in 1999. You lost three good years. So you always have to be careful about people predicting doom. And you got to be aware of people like me. I'll put myself into this. And others in the media. Anyone in TV news, radio news, podcasters, we're looking or always on the look out for something interesting. And it's always interesting to predict the end of the world. A market crash, depression. Does that mean there aren't ever market crashes? Well, obviously not. There was in 2008, there was in 1929. There will be more. We could have one tomorrow. But the one thing I'm absolutely certain of about the future is that I can't picture. You can't either. And most people can't. Those who do and get it right, quite often we're lucky. And they spend the rest of their career making the same predictions and they're wrong, wrong, wrong. But at that point, they've made so much money and they have such name id, they can just kind of coast. That is the situation with someone like Robert Kiyosaki, who's made so much money from his rich guy dad guy books, speeches, seminars, he could predict every single day on national TV or on podcasts or his own social media, that tomorrow the sun will not rise and the moon will be turned into green cheese. And there are people like, oh, that's great, I better prepare. And prepare for the end of the world. I mean, they'll just believe him because he's famous. There is authority bias. We all are victims of it. Occasionally there's confirmation bias where again, if you became famous and rich and successful for making one prediction, saying everyone else thinks the market's going up, I say it's going down because of this. You start to look at that, the whole world through that prism. So you got to be careful about that. Is he accurate in his technical analysis of what could be some of the weaknesses of these companies? Well, absolutely. Obviously a company like Nvidia and a company like Tesla are subject to crap. You can make the case that Tesla is a meme stock at this point. Its valuation is so bizarre and out of whack with any conventional company doing similar things. But Nvidia does have gigantic revenues. Obviously they have a 5 billion, excuse me, a $5 trillion market cap. Could they fall? Absolutely. Don't listen to. You don't need to listen to me or Michael Burry or anyone else. Just listen to Jensen Huang who says, as we talked about yesterday on this program, China could put us all out of business. China is getting further and further ahead with other commentators like Scott Galloway have pointed out that China may just take on a long term nationalistic policy that they make the best AI products and large language models and release them for free to the world, which could essentially destroy the US Stock market because why would anyone pay for the stuff if they can get it for free? And it works perfectly fine. So there's all sorts of risk out there regarding valuations and artificial intelligence and tech companies that could be overly priced. And full disclosure, I do have a lot of holdings in Nvidia and all of these companies through mutual funds. So I'm not trying to talk up my book. They may all go to zero. That is the real risk with any stock you own. It could in fact go to zero. But I also want you to be aware of biases and how people are trying to communicate to you and why you're hearing their mess. So when you hear someone like a Michael Burry or someone like a Nouriel Roubini, also known as Dr. Doom, or you hear someone like Robert Kiyosaki predicting doom, realize that's their shtick. They've been doing it for decades and they're never called on it. There's no, you don't get called out in the media. It's very rare for the media to say, okay, you made one prediction right? 20 years ago, you've made 14 others that were wrong, wrong, wrong, wrong.