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Mark Spitznagel, cofounder and chief investment officer of the hedge fund Universa Investments, has frequently sounded the alarm about bubbles popping and other extreme market events. <\/p>\n
In an interview with the Wall Street Journal<\/a><\/em>, the long-time associate of The Black Swan<\/em> author\u00a0Nassim Nicholas Taleb said a severe crash is on the way and stocks could lose more than half their value, while acknowledging that his latest warning should come as no surprise.<\/p>\n \u201cI think we\u2019re on the way to something really, really bad\u2014but of course I\u2019d say that,<\/strong>\u201d Spitznagel said.<\/p>\n His hedge fund specializes in tail-risk hedging<\/a>, a strategy that seeks to prevent losses from unforeseeable and unlikely economic catastrophes, also known as \u201cblack swans.\u201d<\/p>\n He had famously made astronomical gains on such events, including the COVID-19 pandemic, and more recently has warned about U.S. debt and the \u201cgreatest credit bubble in human history.<\/a>\u201c<\/p>\n Even as stocks have come well off recent highs, with the S&P 500 suffering its worst week since April<\/a>, Spitznagel expects the market rally to continue for months and get wilder because the \u201cGoldilocks phase\u201d of slowing inflation and rate cuts from the Federal Reserve will stoke bets that markets will continue running higher.<\/p>\n But he also warned Fed rate cuts are often the opening signal for severe market reversals, telling the Journal<\/em> that \u201cYou don\u2019t feel like a fool for making a bearish argument.\u201d<\/p>\n Spitznagel sees parallels between today and the dot-com bust but thinks the selloff that\u2019s coming will be even worse than that. That\u2019s because market extremes now represent the \u201cgreatest bubble in human history,\u201d he added.<\/p>\n With U.S. debt already at historic levels<\/a>, the federal government will have less capacity to respond, and the economy could enter a recession by the end of this year, he predicted.<\/p>\n Spitznagel\u2019s latest comments echo what he told Fortune\u2019s<\/em> Will Daniel in April<\/a>, when he said investors\u2019 positive sentiment alone can\u2019t carry markets higher indefinitely and that higher rates are weighing on the economy.<\/p>\n \u201cThe Fed did a lot. And now it\u2019s sort of jawboning its way out of it. But it can\u2019t take back what it did,\u201d he said. \u201cMarkets follow fundamentals at the end of the day, but you can have these little Goldilocks zones where it can get sort of untethered.\u201d<\/p>\n Fed Chairman Jerome Powell and other central banks have hinted in recent days that inflation is finally coming under control<\/a> and that rate cuts may be coming soon, with markets widely seeing the first one in September.<\/p>\n But Spitznagel said in April that fallout from the \u201cthe fastest, greatest tightening ever, by some regards, into the greatest credit bubble of human history\u201d can\u2019t be avoided, adding \u201cThat\u2019s when things are going to be really bad\u2014and at that point, it\u2019s probably also too late to get out.\u201d<\/p>\n<\/div>\nRecommended Newsletter: <\/strong>CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about\u2013and from inside\u2013the C-suite. Subscribe Now<\/a>.<\/div>\n