The chart that has Michael Burry worried about the stock market
"The Big Short" investor pointed to a graphic showing that U.S. households now hold a larger share of their net worth in equities than in real estate.
TL;DR
- Michael Burry warns of a potential long and significant stock market downturn.
- U.S. households now hold more of their net worth in equities than in real estate, a condition seen before in the late 1960s and late 1990s.
- Previous occurrences of this wealth distribution led to bear markets lasting years.
- Burry believes when equities dominate household balance sheets, market sell-offs can impact sentiment and spending more rapidly.
- Wells Fargo suggests this chart indicates policymakers may not tolerate a deep bear market due to the 'wealth effect' and potential economic downturn.
- Wells Fargo sees near-term risk-reward for equities as favorable due to the high economic and political costs of a major drawdown.