Burry, Bubbles, and a Quick Update
Michael Burry showing up on Substack this week feels very on brand for where we are in the cycle…
Michael Burry showing up on Substack this week feels very on brand for where we are in the cycle… His first post opens with a single word: “Folly.”
Then he explains how “Folly makes money. Creative destruction and manic folly are exactly why the U.S. is the center of innovation in the world.” Classic Burry.
He goes on to dissect today’s AI spending boom through the lens of capital cycle theory, drawing parallels to the late 1990s data transmission buildout that everyone misremembers as just a dot-com bubble.
He’s right about the folly, of course.
The hyperscalers have promised nearly $3 trillion in AI infrastructure spending over the next three years. OpenAI alone wants to spend $1.4 trillion over eight years on revenues that are a rounding error. The pattern Burry identifies is unmistakable: stock market peaks tend to arrive midway through these manic investment booms, not at the end.
By the time Cisco’s CEO was saying “we see no indications the radical Internet transformation is slowing” in August 2000, the NASDAQ had already peaked five months earlier. The spending continued, the rhetoric stayed bullish, but the stocks were done.
Where I differ slightly from Burry is on timing. Yes, we’re in a bubble. The capital misallocation is obvious, the vendor financing is back, and Nvidia has become this cycle’s Cisco. But bubbles can run longer than logic suggests they should.
The 1990s boom lasted years after Alan Greenspan warned about irrational exuberance. China’s reopening, rate cuts globally, and corporate buybacks are still providing fuel. And even after the AI buildout has eaten into cash balances, the megacaps still have far stronger balance sheets than what you typically see near bubble peaks, which gives them room to keep spending and extend the cycle longer than most expect.
The folly has momentum.
My guess is we are closer to 1998 than 2000, though I hold that view lightly. Markets have a way of humbling anyone who thinks they have figured out the timing.
That is what I will be watching as we move into year-end. The folly, the flows, the fundamentals, and how long this momentum can keep carrying things…
Speaking of the end of the year, I am also running a small Black Friday offer for anyone who wants full access to the research. It is 25% off the annual plan through Saturday, November 29th.
The market will still be full of folly on Monday, and I will still be here trying to make sense of it.
Hope everyone has a great holiday week and a bit of time away from the screens.
Currently Checkable Deposits as a percentage of Nominal GDP are around 16%. In Q3 of 2007 Checkable Deposits as a percentage of Nominal GDP were around 1%. Which partially explains why the Great Recession was so bad - no one had cash in the bank. If affluent consumers are what is keeping the economy expanding, then they are still sitting on lots of spendable deposits. This implies that even late in the cycle the expansion will continue to chug along.
Brilliantly written. Agree with all points.