In this edition of the Alpha Letter, we cover:
Market: What’s the likelihood of a crash?
Stocks: Here are the equities to own if you think a crash is coming
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Market
What’s the likelihood that we see a crash this year?
Traders and pundits are always trying to predict a crash. Usually, it’s a futile task. If it was super obvious a crash was imminent, it would have already happened or be in the process of happening. In other words, if there was such a catastrophic event or negative event on the horizon, stocks would be selling off very quickly.
Usually, it’s easy to tune out the cries of perma-bears. I follow several accounts on Twitter that have been predicting a massive crash “within a week or two” every single week for the last 14 months.
I think in many cases, it’s people who panic sold at the bottom last year and didn’t get back in quickly enough to benefit from the furious bull run. Now, their calls for a new crash are just wishful thinking.
However, there are some legitimate bear viewpoints to look at. Probably the most famous and well-regarded is Michael Burry, made famous by The Big Short and his call that the housing market would crash in 2008.
Lately, Burry has taken to Twitter to issue warnings about an upcoming crash.



Here’s a summary of Burry’s tweets, which have seen been deleted:
Burry was bullish on GameStop as far back as 2019 and was one of the few well-known Wall Street figures who supported the GameStop movement as it was getting started.
I think this underscores that Burry isn’t just some “angry suit” who’s rooting against retail investors. I think his concerns come from an objective analysis of the current market.
What’s going on right now is definitely unnatural. Brick and mortar retail stocks going up 10% a day everyday for three weeks is certainly unnatural. It’s great while it lasts (we were calling AMC a buy back in early May when it was around $10) but it won’t last forever.
I think a key takeaway from Burry’s words is that you shouldn’t allow yourself to be convinced that the current market realities are the “new normal”.
AMC will not trade at 46x sales forever, which it closed at on Friday.


Burry’s warning is that when stocks like AMC, GameStop or speculative cryptocurrencies fall from their lofty valuations, it could trigger a painful meltdown across the market.
I’m not saying this is imminent, but it’s possible. During any gainful bull run, traders collectively convince themselves that the euphoria is the new normal - and it can last for months or years, until it suddenly ends.
We have always advocated for our readers to maintain a long-term outlook.
Right now, there are 71 cryptocurrencies trading at a market cap greater than $1 billion.
Is that likely to last?

Most of them have similar or the same goals, while many of them don’t actually have any useful application. Would you feel comfortable holding a token similar to Titan, which collapsed from a $2 billion market cap to zero in just a few hours?
AMC has been a great way to make money. I think it could keep going up, but at the same time it could do the same as GameStop did when it fell from $483 to under $200 as people took profits.
Is that a bet you want to make as an individual investor?
Personally, I prefer to hold stocks with strong intrinsic value relative to the price I paid.
Stocks
If you’re at all worried that Dr. Burry is correct about a meme stock and crypto crash, here’s where you should be looking to park your money:
Dividend Stocks - If we’re headed for a meme stock collapse, growth names will also be affected adversely. Value would likely do much better compared to growth as investors flee high growth stocks for the safety of value. Dividend ETFs like the Vanguard High Dividend Yield ETF (VYM) tend to be more value-oriented. There are also several high-dividend ETFs in the small and mid cap space, like the ProShares Russell 2000 Dividend Growers ETF (SMDV).
Commodities/Real Assets - During a growth crash, companies and investments holding real assets will be a safe haven. Holding real estate, gold, silver, or investing in companies that control or produce commodities like corn, wheat, metal, or lumber will be well-positioned to hold their value. Real estate is one of my favorite investments because of the cash flow potential, but if you don’t have the capital to purchase your own, REITs can do the job.
One REIT I really like is Medical Properties Trust (MPW). It’s yielding 5.65% and has held its value very well during the Pandemic. As for as commercial properties go, medical facilities are one of the few classes of assets that won’t be crushed by the remote work trend.
One important thing to note is that real asset tend to do poorly during a recession, but avoid the common fallacy of thinking that every crash is the same. In 2008, housing was the worst-performing asset class (besides maybe mortgage lenders), but that’s unlikely to be the case during the next crash. If Dr. Burry is correct, speculative growth stocks and cryptocurrency will be the worst-performing assets, while real estate should hold its fundamental value.
@redditinvestors Let me add my two bits about the market crash-
I think the coming market crash is more predictable than preceding ones because of the 2020-2021 COVID crisis. What do I mean here.
Normally, ups and downs in economy/market are determined by natural market forces. What happened in 2020-2021 was imposed top-down----think lockdowns etc. The economy was put on pause artificially---and then a tentative reopening timeline was set.
This is absolutely key because unlikely in most periods immediately after a crash---people in 2020-2021 have some rough idea as to when the economy is going to "recover." Whether the economy will actually fully recover is another question, but it's the expectation that matters.
Normally, it takes years for the market to recover because people don't know when the economy is going to recover. However, because of the expectations about reopening and because people wanted to profit off of that, EVERYONE jumped right back in after the crash. The smart money went in first, followed by the institutitionals, and then the retails. This is why the market recovered so quickly....it's the expectations about reopening sooner or later, not some weird unique factor that magically appeared in 2020. Indeed we started seeing real euphoria and FOMO starting in November 2020 with announcements about the vaccine and the meme stock phenomenon came a few months after.
Well, what does this mean when much of the U.S. generally reopens by early July? It means that almost every penny that could be invested to take advantage of the reopening is ALREADY priced in, thanks to this top-down imposed timeline on the economy. Can we imagine more money suddenly pouring in with the reopening? Doubtful. Maybe growth would keep up with investment----except the market is ridiculously overvalued. So that's doubtful too. That makes early July when we near "peak market" as of this time.
We all know the principle of "buy the rumor, sell the news." I would argue that this makes the period between July and end of this year the most likely time for crash. Early July is the reopening for most of the U.S. Most schools will reopen in September, and the COVID benefits expire at the end of October. Apparently people think that the market will track with the economy and boom with the reopening---despite the fact that the market did NOT reflect the economy at all throughout 2020 and 2021. A classic case of people believing what they want to believe.
And then there are some serious questions about the actual recovery of the economy, which will become clear by this fall. Normally, a recession clears away all the inefficiencies in the economy, but what happened with government intervention since March 2020 was that it actually created MORE inefficiencies and distortions in the economy.
So my bottomline....let's not forget the shoeshine boy story....If everyone is investing right now out of FOMO because people have some unquestioned assumptions about how reopening will lead to a market boom....It's time to be very scared. It's this particular top-down imposed timeline that makes this crash more predictable in my opinion.