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August 5, 2024 was a trying day for investors worldwide, as stock markets from Japan to the U.S. were whipsawed without much warning, leaving analysts and economists scrambling to provide answers. A weak jobs report that triggered a key recession indicator<\/a>, and the unwinding<\/a> of some popular and influential trades amid changing central bank policies, were blamed for the fiasco.<\/p>\n As investors watched stocks plummet, the panic on Wall Street even led to calls for emergency rate cuts from veteran economists.<\/p>\n \u201cIt was amateur hour,\u201d Mark Spitznagel, founder and CIO of the private hedge fund Universa Investments, said of the market drama. \u201cI have never seen anything like that in my career.\u201d<\/p>\n Since then, markets worldwide have mostly recovered from the pain, with the U.S. S&P 500 up roughly 5% from its Aug. 5 low. And while there are still concerns that the U.S. economy could be slowing, recession fears have largely been brushed off.<\/p>\n But Spitznagel, who is known for preparing for and profiting from<\/a> big market crashes, warns the recent market volatility is simply another sign we\u2019re nearing the peak of the biggest stock market bubble in history\u2014and most investors aren\u2019t prepared for the pain that will come when it pops. \u201cThese whips are the market process. This is the market zigging in order to zag.\u201d he told Fortune<\/em>. \u201cThis is a stark red flag, it\u2019s a stark warning sign.\u201d<\/p>\n Spitznagel said prior to past market crashes\u2014including in 2007 before the Global Financial Crisis, and 2000 before the dot-com bust\u2014stocks have seen periods of increased volatility. Euphoric stock market runs often end with increasingly extreme swings in investor sentiment. We could be seeing that again today, and on an accelerated timeline, according to the hedge funder.<\/p>\n \u201c[It\u2019s] a great comparison to 2007. But I think we\u2019re going to see a compressed path,\u201d he said. \u201cI don\u2019t think we\u2019ve got a year of this\u2026because the connectivity is greater\u2026the fragility is greater.\u201d<\/p>\n Spitznagel has argued for years that the Federal Reserve helped create the greatest credit bubble in human history<\/a> by keeping interest rates near-zero for over a decade following the Global Financial Crisis, leaving the economy in a fragile state. Now, he says this bubble will soon pop under the weight of the Fed\u2019s rate hikes, and the impact will be even more dire than during past market blowups because we\u2019re living in an interconnected global economy where the Fed\u2019s policies move markets worldwide.<\/p>\n \u201cDips are the price of stock market gains. You\u2019ve got to be able to pay that price. The problem is, the big ones. They\u2019re too destructive of a price,\u201d he said. \u201cThat\u2019s where we could be headed.\u201d<\/p>\n A quick \u201cconscience clearing\u201d moment here: Spitznagel, who has been bullish<\/a> over the past few years because of his belief that the Fed\u2019s tightening takes time to impact the economy, noted that before bubbles pop, they tend to hit euphoric highs, which means his investors shouldn\u2019t attempt to bet against the market or run for the hills.<\/p>\n \u201cI think if anybody shorts the market or is too under invested relative to their temperament, they\u2019re going to get squeezed in at a euphoric height that is probably still coming in the months ahead,\u201d he said.<\/p>\n For retail investors, the hedge funder always preaches patience, investing in basic S&P 500 index funds, and having a margin of safety so that if stocks do fall, you aren\u2019t forced to sell at the worst moment. The biggest mistakes in investing are made when people sell near market lows, or buy near market peaks, according to Spitznagel.<\/p>\n \u201cI think people just kind of need to have this come-to-Jesus moment. Close your eyes, think about a world where the market is down 50 to 75% and then think about opening your portfolio. Are you going to do something crazy? And now, think about it [being] up 20%, and open your portfolio. Are you going to do something crazy?\u201d he said. \u201cThat\u2019s the question you should be asking.\u201d<\/p>\n<\/div>\n\nA 2007 redux\u2014with a tighter timeline<\/h2>\n
Don\u2019t risk it all betting against a bubble<\/h2>\n
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