Investor Michael Burry issued a warning on Twitter that Wall Street stocks are “vastly overvalued and about to drop,” an announcement that was removed from the social network late Monday night.
Almost perched with a multiple problem
Burry tweeted, attaching a chart tracking the price-to-sales ratio of the equal-weighted S&P 500 index.
The graph showed that the ratio was below 1.0% for most of the 1990s and 2000s, but has almost doubled in the last 10 years to 1.9% today.
Burry, who predicted the 2008 mortgage crisis, wanted to show that the index trades at almost double the earnings of its components, indicating that the valuation multiples of America’s largest public companies have stretched to unsustainable levels.
The investor probably used the price-to-sales ratio because it is more speculative than the price-to-earnings or price-to-book ratio, which compares a company’s market capitalization to its revenues, rather than its earnings or net assets.
Also read: Michael Burry warns about stocks and accuses the Fed of minimizing inflation
Burry and his bet against the housing bubble The investor is best known for his huge bet against the American housing bubble of the mid-2000s, which was immortalized in the book and film ‘The Big Short’.
He also paved the way for the meme stock craze by investing in GameStop (NYSE:GME) before its stock skyrocketed in January 2021, and made high-profile bets against Elon Musk’s Tesla (NASDAQ:TSLA). and the Ark Innovation ETF, Cathie Wood’s flagship fund last year.
The head of Scion Asset Management repeatedly sounded the alarm about excessive asset valuations and predicted a historic market sell-off in deleted tweets over the past 18 months.
“The biggest speculative bubble of all time in all things,” Burry declared in June. He also predicted “the mother of all crashes” that month and warned that the market was “dancing on a knife edge” in February 2021.
Additionally, Burry warned in June 2021 that the prices of bitcoin, meme stocks and electric vehicle companies had been “driven by speculative fervor to insane heights from which the fall will be dramatic and painful.”
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