Michael Burry Predicts: INDEX FUNDS WILL COLLAPSE! (I Explain Why)
Michael Burry (Big Short) reveals SHOCKING ETF insider information đYOU CANâT AFFORD TO MISS! đ And as always, I explain his predictions simply and quickly. Michael Burry is famous for being one of the few people to bet big on the housing market crash. Michael Burry is also famous for being portrayed on the hit movie âThe Big Short.â Now Michael Burry is making another huge short bet, heâs predicting index funds and ETFâs will crash just like the housing market did 10 years ago. Michael Burry goes so far as to say the current index fund market is similar to subprime CDOâs before housing bubble 1.0 crashed.
This is really big news because Michael Burry is NOT someone that grants a lot of interviews. Youâre not going to see him talking about his latest stock picks on CNBC. He rarely talks to the media, so when Michael Burry speaks, people listen. AND SO SHOULD YOU!!
Index funds and ETFâs have become extremely popular. Michael Burry points out they have many features attractive to the average retail investor, low fees, no homework and supposedly, over the long run, youâll beat all the active managers who charge all those fees for doing all the research. It seems too good to be true, and according to Michael Burry, it is too good to be true. And honestly, to me that makes sense. The ETF pitch you hear from ALL the âfinancial expertsâ on YouTube claim that ETFâs are mathematically superior and active managers are just trying to rip you off. But if you listen to the ETF/Index fund pitch it sounds very similar to a get rich quick scheme or lose weight without exercise. Basically, be as lazy as you want, just put your money here and in the long run youâll beat all the proâs. To me, itâs sounds like Michael Burry is exposing an informercial!!
In this Michael Burry ETF video youâll discover:
How ETFâs work.
Michael Burryâs first concern (no price discovery creating a bubble).
Michael Burryâs second concern (liquidity risk)
Michael Burryâs third concern (derivative risk or counter party risk).
Do I think you should buy EFTâs or Index Funds?
This is a MUST WATCH VIDEO FOR ANYONE WITH MONEY IN THE MARKET!!
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#MichaelBurry #IndexFund #Bubble #Crash
Another easy to understand and information soaked video. Thanks George and team.
Thx for taking the time to watch and comment. We’ll all appreciate it very much! đ
NOTE: If you’re a little confused how “market maker Mike” buys and sells the shares and/or farmland don’t worry. I didn’t explain that in detail because I wanted to keep the vid shorter. There many different ways it works (I’m not familiar with all of them). But imagine the ETF was for Apple and Microsoft. If the secondary market price was higher (price for ETF shares) than the normal shares of Apple and Microsoft, Mike would buy the shares of Apple and Microsoft on the primary market, exchange them for new shares in the ETF, and sell those back on the secondary market to those investors wanting the ETF shares. Mike then pockets the spread. It works in reverse order is the price on the secondary market is lower than the underlying asset. Hope that makes more sense. Thx for watching everyone!
Market manipulator Mike đ
Yeah, according to what I read the large institutions that are usually the market makers, I believe they’re called AP’s (active participants) and are not legally obligated to provide liquidity so if SHTF there literally no buyers.
@George Gammon lol oh my
George what if its an INVERSE ETF say you’re actually shorting the S&P instead and say theres a recession and theres a huge influx of capital coming in?
@Victor K.T. Chan I’d have to think about it Victor. Problem there might be the vehicles used to track the short bet. I’m guessing they’re derivatives mostly. That goes back to counter party risk.
George- I’m really enjoying and learning from your channel. Great content, great delivery, great editing crew. Keep it up!
Will do! Got vids coming out both Sat and Sun this weekend along with the live stream! đ
Another great video, George! To me ETFs are a ponzi scheme! Passive investing where the investor is to lazy to do his or her research into a stock price of a company. Also very good points about liquidity. In my opinion this is why we’re seeing big problems in the repo market. CLO’s, corporate bonds resulting in huge corporate debt is very much tied to ETFs. When the house of cards collapses this will be nasty.
Very well said. The pitch for index funds do seem like an infomercial to me. Don’t work and lose weight or get rich while laying on your couch watching netflix đ
Wat does ur gann cycle tell u …?
@inquisitive I believe at some point in 2020 defaults in corporate bonds mainly triple C will spread to higher grade B’s and A’s. That’s how investment banks create these bonds. Very similar to the sub prime bonds (housing bond’s) were bundled into higher grade debt as a tranche. We know what happened in 2008. This will be a lot worse for the fact its corporate. Will lead to massive defaults and corporations going bankrupt.
I had invested in a High Dividend ETF and when I researched it more I found out that the dividend payout was not just dividends paid by the companies in the ETF but also capital paid out. I became skeptical and realized it appeared shares of the companies must have been sold to make the dividend payout or they had to sell more shares of ETF to open market for more capital to meet obligations of paying out dividends. I traded ETF a few times but not donât trade or buy them as I truly believe if market turns no one will buy the ETF shares and I would lose most if not all all my investment because who would buy it if the stock prices of companies in ETF fall it would never get back to where I bought it at. Investors should buy good quality companies at good valuation not overvalued prices. Stock market investing is overvalued due to 3 things currently: 1) FOMO (Fear Of Missing Out), 2) Corp Stock buy backs to prop up EPS (companies EPS have been falling not increasing), and 3) FED QE Liquidity.
Yea but if you are buying an growth ETF you are in it for the long haul, so over time things will return?
An issue with this analysis is that sure, demand for ETFs drive stock prices up, but the same would happen if the same liquidity was chasing the same assets via other means (not ETFs). In short, inflated P/E ratios are not caused by ETFs per se.
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I think you missed the ‘price discovery’ point there…
@Nick Outram I didn’t, maybe you missed my point? Or elaborate on the relevance of your comment
@Dimitri Andreou what he means with “price discovery” is that the individual stock pickers analyze the stock atleast to some degree to determine whether its of good appreciation Value to them, however the ETF investor just throws their money in without understanding where their money is actually going to end up invested.
Hey George, I am working in finance in London for last 9 years and I must admit, I have never heard anyone explaining seemingly “complex” things in such a simple manner! You are awesome man! Since I discovered your work, I am watching your videos on a daily basis, its like brushing teeth now đ Thanks for your effort and time making this, a lot of people need this information to understand what is actually happening around them.
Same here đ Watching all his videos
Mark Sesum oh and the banks got bailed out in September 2019 via the repo market for massive sums… Wasn’t enough tho to save them and even what’s been dished out now isn’t enough as it’s gone exponential… Guaranteed implosion without direct and quick change via reset – even if they started now could be 3-6 months before the system is fully working and loaded…
Therefore expect hard lock downs world wide as they exchange the systems…. Or if some entity doesn’t play ball then expect full scale civil world war…. Oh and famine/starvation as a by product.
This was very educational as always! Thank you for these videos were you explain mechanics of financial world!
George, THAT WAS ABSOLUTELY BRILLIANT!!! I love the way you put all the pieces together in this easy to understand and concise explanation!
Professor Andrew Lo’s MBA corporate finance class has his first lecture as a price discovery exercise. It’s free to watch on MIT’S Open Courseware here on YouTube. Without price discovery and the ability to analyze the intrinsic value of the underlying asset(s) of the securities you purchase, you might as well be playing Russian Roulette with your money in the long run. I do agree with this analysis by Dr. Michael Burry.
However, on the other hand, buying the market average (ETFs and Index Funds) is like walking the median of an 8 lane highway with all the market players zipping by in each direction, as long as you don’t step off the median to get hit (buying individual securities, thus increasing your risk). You’re able to disregard price discovery by allowing the market players to do that for you and keep the underlying intrinsic value of the ETFs and Index Funds afloat. You essentially get to sit back, relax, while all the other market participants do all the hard work for you.
There’s no ‘silver bullet’ to making it big in the markets. It is a multi-faceted and complex orchestra of factors that should all be taken into account. It also takes time. Respecting the time value of money, buying the market average is the best method so far over time to minimize your risk and maximize your return, without being greedy. This is why it’s good to be average when investing long term.
Such a great way of explaining this, I subbed! But iâve got one more question; for the last couple of years thereâs been so much speculation on a collapse of stock markets. Arenât the short sellers actually fueling the ever persisting bull runs by getting squeezed out over and over? Or is this not likely at all?
Tim Schalkers lol no
Look at the yield curve it predicts recessions.
Basically if you have $100,000 debt and default on the loan/ credit then thatâs when a recession happens when people canât grow any higher.
Majority are long.. thatâs why price goes up, if majority were short, price would go down…
You only short during a recession lol
QE is quantitative easing which is the FEDERAL reserve is pumping more money / liquidity back into the market fueling the economy.
The banks like chase, Wells Fargo can borrow fed money for cheap and loan the credit cards for 20% interest. So imagine if we can borrow the fed rate đ lol
Great job explaining this concept. I have puts (or calls in the case of inverse funds) in place to capitalize on a 10-15% correction for some of the major indexes, but didn’t really think about the possibility of them not honoring their side of the deal if things went too far south. That’s a little scary to think about.
You’re now my favorite economy guru; the work of you and your team is absolutely admirable
Great video George! Excellent way to simplify such a complex topic! One question: what about bearish ETF’s that have underlying short positions. How can these be valued? and is there a way to determine if they are also in a bubble?
The million dollar question is: are ETF’s truly affecting the price of the underlying assets and if they do, then there’s a bubble.
to some extent for sure?… good point in how ETF = sold quickly. and Asset = takes months and years to sell becomes kind of awkward. Also ETF is mostly pumped by media?
Reflecting *
Yes they do. The Price maker buys in the primary market if there’s a demand for that ETF. And the primary market makes the price of all assets.
Thank you, thank you, thank you Georg. I needed this to be explained to me. You are a fantastic educator. Love you heaps.
You are by far the best educator Iâve ever seen on YouTube, you could probably teach anything and people will âjust get itâ. Thatâs truly a rare talent.
great video, glad to see people are actually bringing to light some of the risks that aren’t discussed in some of the complex financial products out there. one note though ETF’s have an ‘authorized participant’ that are required to create a market really no matter what. So if market maker Mike were this Authorized participant he has duty to be bidding/offering no matter what the price of underlying is. He doesn’t actually care what the price of the underlying is because if he is bidding buying and taking losses. He will sell short the underlying like mentioned in the video but he will redeem the shares directly from the ETF Sponsor and cancel out his losses in the ETF. I am sure there are ways around them having to make active markets in certain times like liquidity vacuums (exactly when you need it lol). More or less the big risks exist in ETFs where the underlying are illiquid securities that don’t trade in secondary markets like farm land or if the underlying are derivatives contracts that have to be rolled over and are just claims on a separate asset. (a claim on asset that is just another claim on seperate asset a la derivative.)
There is definitely a bubble caused by ETFs, I think the reason why average P/E ratio has increased so much is because of that. Legendary investors like buffet and lynch still think that ETFs are okay though, so I really don’t know what will happen.
Maybe this corona virus actually helped some of the bubbles to burst out, but the problem is that Fed just bought a new bubble machine.
If youâre a long term index fund investor, does it matter if prices plummet? If the underlying company is in tact, theyâll come back up so does this warning only apply to those planning to cash out in the near term?
Thank you, finally someone that could explane the backside of indexfunds in a language I can understand.