When the man who predicted the 2008 crisis says 1987 could repeat itself, the market usually answers with another record. That is exactly what happened on Tuesday.

American investor Michael Burry, whose story was filmed as „The Big Short”, wrote on Substack that he still believes we are near a major top. „I think we may be near a major top and a crash similar to 1987 is possible, but new records on the S&P 500 will probably pull fresh money into the market”, he posted. In other words: he knows he is right, and he also knows that right now it means nothing.

The numbers are on the optimists' side. The S&P 500 rose 1.9 percent on Tuesday and closed at a record for the first time since June. The tech-heavy Nasdaq Composite jumped 2.7 percent, giving it almost five percent in gains in the first two trading days of the week alone. Better corporate results helped, as did the fall in oil prices driven by expectations that the Strait of Hormuz will soon reopen to maritime traffic.

The spiral that feeds itself

The most interesting part of Burry's warning is not the number but the mechanics. He argues the rally pushes itself higher: when volatility falls, funds targeting a set level of risk are automatically forced to buy more and borrow more.

„Remember, gains in a market with falling volatility force funds targeting certain volatility levels to increase leverage, and then the other momentum-following strategies pile in”, he wrote. The system accelerates while everything goes up. The problem is that the same system accelerates going down, if the direction turns sharply.

What he is betting against

Burry holds positions against chipmakers and companies tied to artificial intelligence - Nvidia, Micron, Applied Materials, Palantir, Tesla, Caterpillar and the iShares Semiconductor fund (SOXX). He disclosed the positions publicly in late June and gradually increased them through July. By his account, all of them are profitable except the one against Nvidia.

His argument on artificial intelligence is specific: chip demand and the financing of data centres and infrastructure rest in part on arrangements that may not hold up over the long run. He is not claiming the technology is fake. He is claiming the way it is being paid for is.

„Again, shorting is not for everyone. I have to do this. Most people should not”, Burry concluded.

That is an honest sentence and it is worth reading twice. A man who called one big crash once in his life now has to repeat the prediction every year - because if he stops, he stops being the man who called the crash. Whether he is right this time will be known once it is too late for everyone reading him.