‘Black Swan’ investor backs Michael Burry’s AI warning: ‘Euphoric rally’ comes before historic crash. Protect your money

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Mark Spitznagel thinks Michael Burry has spotted the right danger at the wrong time.

The Universa Investments founder told Business Insider (1) that Burry is right to question the huge sums pouring into AI chips and data centers.

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But he isn’t running for the hills yet.

Spitznagel expects “one more really big, risk-on, insane, euphoric rally” before the market turns. Once that rally burns out, he believes investors could face a crash bigger than anything they have seen in their lifetimes.

“I will be the biggest bear that you’ll hear from in the months ahead,” he said. “Just not right now.”

Sell too early and you could miss a final surge. Stay heavily invested in the companies driving the AI boom and a sudden reversal could tear through your portfolio.

A nasty choice for investors out of the loop.

Burry may be right, but early

Burry, famous for betting against the housing market before the 2008 financial crisis, has repeatedly challenged the economics supporting the AI boom.

He has accused major cloud providers of using aggressive accounting (2) as they pour billions into Nvidia chips and servers. Burry argues (3) that companies including Microsoft, Google, Oracle and Meta are extending the useful lives of that hardware, spreading depreciation costs across more years and making current profits appear stronger. He estimated that the accounting choices could understate depreciation by roughly $176 billion between 2026 and 2028.

Spitznagel agrees that the warning signs are real. He also knows that expensive markets can keep climbing long after skeptics identify the problem.

He believes the economy is “rolling over” as the effects of previous interest-rate increases continue to work their way through the system. Yet he sees no immediate trigger for a collapse. In his view, Burry is “going to get the timing wrong.”

Being correct about a bubble doesn’t guarantee you’ll make money betting against it. Imagine selling a $100,000 portfolio today, expecting a crash.

A few weeks later, the market climbs by 50% instead. If you were invested, your portfolio would rise to $150,000. If a 30% plunge happened then, you’d still be left with $105,000.

That leaves you $5,000 behind, excluding any interest on the cash, taxes or trading costs.

Spotting a bubble and making money from it are two separate achievements. You have to identify the danger and survive however long it takes the market to agree with you. Or be able to see the future.

Read More: Vanguard reveals what’s coming for U.S. stocks — and it could be bad news for this group of investors

Hedging without copying a hedge fund

Universa specializes in tail-risk protection. Its funds make small bets that usually lose money in normal markets, but they pay off enormously when a rare disaster hits.

According to an April 2020 report based on Universa’s client letter (4), its tail-risk strategy generated a reported 4,144% return during the first quarter as COVID-19 hammered markets. The letter said a portfolio with 3.3% invested in Universa and the rest in an S&P 500 tracker would have gained 0.4% in March, even as the benchmark fell more than 12%.

Most people can’t recreate that strategy at home. It relies on sophisticated options trades that may expire worthless again and again -– mistakes the average American simply can’t afford to make.

Simpler ways can make a portfolio less dependent on the next move in technology stocks, though none will block every loss. The goal is to avoid having all your money react to the same market shock at once.

Add precious metals to your retirement holdings

Gold often attracts buyers when inflation rises, or confidence in financial markets weakens. Its price isn’t tied to a company’s earnings, so it behaves differently from stocks during periods of stress.

Gold can still fall sharply. It also produces no earnings or dividends. But even a modest position can provide some balance without forcing you to abandon the assets responsible for most long-term portfolio growth.

If you’re curious about adding precious metals to your broader inflation-hedging strategy, a gold IRA from Goldco lets you hold physical gold and other metals while still getting the tax advantages of an IRA.

They also offer a guaranteed buyback program, meaning they’ll repurchase your metals at the “highest price” according to market value if you ever decide to sell.

If you want to explore whether precious metals could be a helpful hedge for your portfolio, you can download Goldco’s free gold and silver guide to see if it’s a good fit for you.

Collect income from real estate

Rental real estate can make money through tenant payments and rising property values. Those returns aren’t directly tied to the stock market’s daily mood.

There are risks here, too. Vacancies reduce income, repairs cost money, higher interest rates can put pressure on property prices and new purchases, so on and so on.

Owning shares in individual properties lets investors get real estate exposure without dealing with tenants or replacing a broken furnace.

You can tap into this market by investing in shares of vacation homes or rental properties through Arrived.

Backed by world-class investors, including Jeff Bezos, Arrived allows you to invest in shares of vacation and rental properties, earning a passive income stream without the extra work that comes with being a landlord of your own rental property.

To get started, simply browse through their selection of vetted properties, each picked for its potential appreciation and income generation. Once you choose a property, you can start investing with as little as $100.

An industrial approach

Accredited investors can now tap into this opportunity through platforms such as Lightstone DIRECT, which gives accredited investors access to single-asset multifamily and industrial deals.

Lightstone DIRECT lets individual investors tap into the institutional approach of Lightstone, one of the largest privately held real estate investment firms in the U.S., with $12 billion in assets under management.

The platform eliminates middlemen and the extra layers of fees that can add up in traditional real estate investing, usually known as “fee stacking.” This streamlined approach provides more direct access to institutional-quality deals.

Over nearly four decades, Lightstone has delivered strong risk-adjusted performance — including a 27.6% historical net IRR and a 2.54x historical net equity multiple on realized investments since 2004.

Each opportunity requires a $100,000 minimum and undergoes a rigorous review by Lightstone’s principals, including founder David Lichtenstein.

Lightstone also invests at least 20% of its own capital in every deal — roughly four times the industry average. With skin in the game, the firm ensures its interests are directly aligned with those of its investors.

Go beyond public markets

Private investments don’t rise and fall on a stock exchange every few seconds. Their results can come from rent, loan payments, private-company growth or the outcome of a legal claim.

That can reduce an investor’s dependence on publicly traded stocks. It can also make an investment’s true value harder to see day to day.

Liquidity is the bigger catch. Some private investments may tie up your money for years, so they shouldn’t hold cash you might need for an emergency or near-term expense.

With Willow Wealth, eligible investors can diversify beyond publicly traded stocks and bonds through private-market opportunities spanning real estate, private equity, private credit, art and litigation finance.

Minimum investments start as low as $5,000. You can select individual deals or opt for diversified funds, including funds managed by institutional firms such as Goldman Sachs, Carlyle and StepStone.

More than 500,000 members have invested over $6 billion (5) through Willow and the platforms it has acquired.

Private investments can require long holding periods, carry higher fees and result in losses. See how Willow can put your money to work across a wider range of assets.

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Article Sources

We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.

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.