Many of you have likely seen or heard of the movie named the big short, where four investors predict the 2008 recession and make a large portion of money from it. One of these investors, michael bury, has recently came out and explained that we are, in an index fund bubble a situation very similar to the 2008 recession. As of right now, the stock market is seemingly unmatched with reality, which is all fueled up by the index fund bubble. In this video i'm going to explain what the index fund bubble is and why michael bury is predicting a crash in the market.

In the 2008 recession, cdos or collateralized debt obligations were seen as passive investments and, as a result, investors funneled a large amount of money into cdos without taking a look at what was inside the cdos. This caused the bubble in subprime mortgages and, like all bubbles, it popped. If you don't understand what cdos are, don't worry we'll cover that very soon, so you may be wondering why is this similar to our current situation? Michael bury believes that passive investments in s p, 500 index funds and bonds are inflating valuations and fueling up another bubble. If we compare this to the 2008 recession, you'll find that there are a lot of key similarities, all of which we're going to discuss in this video.

In order to buy a house, many people obtain loans, which is called a mortgage. These mortgages were given by banks who decided they would resell them to normal people like you, and i, the banks, bundled a lot of mortgages together into a package and called them cdos or collateralized debt obligations. Investors would buy these cdls, but not take the time to read what mortgages were inside, because many thought it was just free money, but as we know, there is no free lunch in our current situation, many people are blindly buying s p 500 index funds. This is because they believe that they'll receive a 12 annual return over the long term, with no risk at all.

What many don't realize, however, is that the s p 500 index fund is a bundle of stocks very similar to how cdos are a bundle of mortgages, not only that but similar to cdos. Most investors don't take a look at what is inside these s. P. 500 index funds i mean hey, who would want to research on 505 different stocks? The problem is that when these investors buy s p 500 index funds, they are buying those 505 stocks in the s p 500., as more investors continue to buy s p 500 index funds with the mindset that there is little to no risk.

They continue to buy these 505 stocks when there are a lot of people buying a stock. The price goes up. This works the same with index funds as when there are a lot of people buying s p 500 index funds. They are just buying the 505 stocks inside.

As a result, the stocks inside s p 500 inflate in value leading to absurd valuations. This is seen in what michael bury has said, as he stated that this is very much like the bubble in synthetic asset, backed cdos before the great financial crisis in that price. Setting in what the market was not done by fundamental security analysis, but by massive capital flows based on nobel approved models of risk, that proved to be untrue. This similarity comes not from the 2008 recession, but the great depression in the great depression.

There was a fast drop in the market, followed by steady recovery. What we are seeing right now is very similar. There was a sharp drop in the market that was followed by recovery. However, as we all know, after the recovery in the great depression, there was a massive drop in price.

While michael bury hasn't spoken about this, it is worth noting so now we know that michael bury has been predicting an index fund bubble, but how is it that he has been preparing for the collapse? There are three different ways: michael bury is preparing for the market crash and based on these, you can decide whether you agree with any of them and maybe even implement it yourself. However, just note to always do your own research as bury is not a financial advisor, because michael bury knows that only the stocks inside the large index funds are bubbling up. He has recently been buying plenty of small cap stocks. However, he doesn't just purchase the typical small cap stock with steady growth.

Instead, he purchases stocks that he believes are severely undervalued. The largest of his positions include gamestop tailored brands, sportsman warehouse and blackberry as a growth investor. This is, in my opinion, the worst out of the three michael bury has recently told bloomberg. He has made a bearish bet that has paid off which allows us to infer that he has shorted the market in some shape or form.

This could mean simply shorting index funds or buying long dated put options with so much unpredictability in the market right now. This is definitely more of a high risk. High reward play michael burley has recently said that it is not hard in japan to find simple, extreme undervaluation, low earnings, multiple or low free cash, multiple. In many cases, the company might have significant cash or stock holdings that make up a lot of the stock price.

Essentially, what this means is that some stocks in the japanese market are so undervalued that the company's cash is worth a lot, if not all, of the stocks value. If you would like to look further into this, michael bury has stated that the global replacement in semiconductor display and related industries has hurt the shares of related smaller japanese companies. Tremendously. I expect companies like tasman and nippon pillar packaging, another holding of mine to rebound with the high beta to the sector, as the inventory of tech components is finished off and growth resumes.

If you would like to look into buying japanese stocks, you would have to obtain an international broker. The most popular international broker of them all is interactive brokers, which will allow you to trade japanese stocks without any commission. Overall, there are always opportunities in the stock market. At any time - and there are plenty of ways to take advantage of the index fund bubble, one of the best platforms to start with is weibull, which is a commission's free platform that will reward you with two free stocks.

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