Burry, Bubbles & Buy Signals
Why 'Capitulation' is a Powerful Tell
📌 The Quick Hit
During every bull and bear market cycle, investors should expect scary narratives.
Bubble talk is a little different from normal fear-mongering. The word itself suggests collapse or a “pop” that is unavoidable.
Capitulation (giving into market worries) acts as a curative of sorts. It brings repose and resets the market.
It can also serve as a “buy” signal.
Cycle Hype
I am not a market prognosticator. I don’t call market highs or lows. But I was trained to identify signals. Indicators that usually point to something other than what appears “obvious.”
Capitulation is one such indicator - not an indicator of doom, but of hope. I consider it a useful buy-signal.
As previously noted, “bull markets climb a wall of worry.” If no one is worried, that is a signal that it might be time to start worrying.
It isn’t the “good news” necessarily driving things up, but the failure of the “bad news” to inhibit stocks from climbing.
During every market cycle (bulls & bears) there is at least one (usually multiple) “story” or “superstition” that hypersonically gains flight on the wings of its own hot air. I think of media-driven worry as “cycle hype.”
So, when you hear trending bad news, usually associated with explosively loaded terms like “bubble” (pardon the pun) - and especially when fundamentals remain stable - then you are justified in thinking somethings not quite right.
The Burry-Factor
When media pundits and “market experts” import a “story” that seems to provide a definitive “correlation” - one thing proves or validates another thing - it is sometimes for the purpose of bolstering the narrative.
Again, more often than not, the correlative “story” can’t be verified. Superstition serves to amplify cycle hype.
In this correlation, Michael Burry’s quiet decision to shutter Scion Asset Management collided with the increasing drumbeat of “AI Bubble” warnings, producing a fresh swirl of anxiety.
Burry’s exit isn’t, on its own, a market-moving event; Scion wasn’t large enough. What is consequential is the symbolism. His previously disclosed “put” positions (buzzword = negative on a stock or stocks) against Nvidia and Palantir had already spooked traders who treat his signals as omens.
So, when he formally dissolved the fund’s registration, the narrative took on superstitious meaning overnight:
If the man who shorted the housing bubble is stepping off the stage, maybe the whole AI boom is a mirage.
Cue the cycle hype.
The Bubble That Wasn’t
That mood showed up instantly on trading screens. Palantir plunged double digits on a day it posted perfectly respectable results. Nvidia, whose gravitational pull now shapes the entire index, spent several sessions in retreat.
Fund flows tell a similar story. Weekly ICI data shows stretches of meaningful redemptions from active equity funds - investors yanking cash after scary headlines and a few rough days in tech.
Yet ETFs, particularly broad market vehicles, are still attracting capital. That’s the split-screen reality: pockets of fear alongside steady long-term allocation.
So the market hasn’t thrown in the towel; it’s only tightening its grip. What we observed over the past few weeks is not mass surrender but momentary buckling. Investors blinking at shadows while the long-money crowd keeps walking forward.
Capitulation As A Curative
These are not broad-market collapses. They’re spasms. But spasms are what capitulation looks like in its early form: sudden, high-volume exits triggered not by valuation math but by nerves.
Capitulation is such a strong indicator that the bull market cycle is not done. It’s an investor “tell” - a sign that investors can’t take the heat or are so scared that they bolt for the exits.
But mostly, capitulation acts as curative. It allows for pause and a resetting.
Like most cycle-hype, bubble-mania will pass. True bubbles pop, while mania passes.
Takeaway: Blurry Bubbles
Interestingly, little seen in the current wave of AI Bubble cycle-hype are real comparisons to the “Housing Bubble or “Dotcom Bubble”. There are multiple references to them, but little rational, comparative analysis of past bubbles.
Why is that?
Perhaps because the differences are literally so enormous it would wear thin the veneer of the current “bubble” narrative.
My takeaways are simply that the current narrative is too obvious:
Bubbles are rarely “announced” like this one. They usually get little attention until just before they “pop.” Perhaps things are “different this time,” but…
Markets discount widely known information (i.e., a lot of “attention”), including bubble talk. Is the “AI Bubble” already priced into the market?
Previous “bubbles” (Dotcom, housing) bear no resemblance. They reflect blurry images perhaps (e.g., “cheap money”, “oversupply”), but pale in comparison.
The subjects of the current AI Bubble narrative are large, well-capitalized, well-managed corporations whose CAPEX spending is a reflection of their outlook for potential AI demand.
The objects of a bubble pop are investors who fearing a collapse, would head in drove for the exits - capitulation. Only we don’t see that yet - at least not on those investors who are long on stocks. Perhaps we will see it emerge for those who are short.
Is the AI infrastructure build-up ahead of itself? YES! And thank goodness for that. Can you imagine the backlash on the tech industry if it fell behind on AI spending? But, from my perspective, if AI spending is ahead of itself, this should point to how transformative AI is likely to be.
🚀 Up Next:
Thursday - Stayed Tuned for a New Series
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