re: Michael Burry calls passive investments/index funds a bubble

I may not understand your question, but I think what you're asking is why do I think people are disregarding fundamentals when investing in an index? If you know 14% of your investment will be bankrupt effecting all of the other investments should one factor change - in this case interest rates rising and liquidity tightening (see Q42018) - you have to ignore this information (or decide the risk is worth it) in order to proceed with the investment anyway.

Regarding the second question, if an individual company's stock price can be artificially pumped up by virtue of being in the right index and the passive buying of their shares, that company gets to do any number of things from issuing debt to dilution of shares, etc. in order to stay afloat whereas before the rise of index funds an active manager would cut it from it's holdings for not meeting criteria (debt levels, earnings, growth, or whatever the fund's objective was) and we'd all find out who was swimming naked when the tide went out.

I read this story earlier this week, but I've been reading about the passive indexing bubble for years. It makes sense to me. Here's one I read last year that's pretty thorough: LINK