When the bubble arrives, how to "smartly" short it?

Author: Campbell, Macro Analyst Editor's Note: Recently, the memory chip sector in the US stock market has become the main theme of the tech rally, with share prices of companies like Micron Technology, SK Hynix, and SanDisk continuing to surge. At the same time, the debate over whether AI has entered a bubble phase is heating up again. Market opinions are divided: Dan Niles, a well-known chip analyst during the dot-com bubble, believes that the current development of AI is closer to the mid-stage sprint of internet infrastructure in 1997, rather than the tail end of the bubble in 1999. He points out that the rise of AI agents is driving a surge in demand for computing power, and while chip stocks have high short-term valuations, they still have long-term potential. Hedge fund legend Paul Tudor Jones also expects that the AI bull market is currently about 50% to 60% complete and may continue for another one to two years. In contrast, Michael Burry, the real-life protagonist of the movie "The Big Short," has issued a warning, believing that the current market is highly similar to the eve of the 2000 dot-com bubble burst. Amidst the intertwining of mania and anxiety, and with big names holding conflicting views, how should we respond if a bubble truly exists? The author of this article combines his own experience to share a hardcore practical guide on "how to short a bubble." The following is the original text of the article: Honestly, I don't know if we are in a bubble right now, and I'm not even sure if that's a knowable question. I know about as much as you do: the AI revolution is real. Although I gave up my professional investment career to go long, and have been writing about it for the past three years, I still feel like I haven't gone long enough. Like you, I look around and see many people becoming extremely wealthy just by stringing together Tokens to create AI applications (or going all-in on infrastructure projects that provide the computing power to generate these Tokens), which sends shivers down my spine and makes me jealous. This then leads to a feedback loop where I can't tell if my views are being influenced by jealousy, or if jealousy is telling me a fact I already know: "Keep going long." To some extent, I do feel that "the future is here, and we need massive computing power," so you would indeed want to buy these assets. I don't think software stocks are performing that well, and the market is selling off these stocks, so there's not much profit to be made there. Like you, I have also been watching the ultra-low valuations of Korean stocks and am interested in the opening of their market, which is clearly inseparable from the recent stock market rise. I am also surprised by the official quiet easing of the Supplementary Leverage Ratio (eSLR), where banks and funds are allowed to hold less regulatory capital to buy US Treasuries; this is simply a classic display of brilliance in sheep's clothing. - I can imagine a day when interest rates rise enough to end this "liquidity feast," but that time hasn't come yet. - I can also imagine war ending this feast, where the extreme volatility there shook me out of the uptrend, so who knows what the future holds. - I can also imagine that Canadian bank stocks with a price-to-book ratio as high as 3 and very low volatility are an excellent shorting opportunity, but due to the lack of trading channels and sufficiently long-term options, I can't write a good article to provide you with some solid insights. Frankly, there is still a lot I cannot say here. While this won't change my fundamental view on the trend, it does severely limit who and what I can talk about here. If you understand Andreesen's "stop the internal friction" theory, you will know that my cautious personality is destined to never make me a billionaire. However, there is one thing I know how to do. This is also a bit of Alpha I can give you. We are not discussing today whether we are in a bubble, but rather how you should short a bubble if you want to. Why is it so hard to short a bubble? What is a bubble? If something looks like a bubble, sounds like a bubble, moves like a parabola straight into the sky, and requires increasingly higher expectations and leverage to maintain price increases, then it is a bubble. Why is a bubble so hard to short? The problem is that the easiest things to short are those where fundamental bad news is gradually known to the public, followed by a steady decline and eventual collapse. In this process, you might encounter a short squeeze (where shorts are forced to buy to