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“GREATEST BUBBLE” SET TO BURST, SAYS EXPERT




CIO HIGHLIGHTS INDICATORS BEHIND WHAT HE BELIEVES IS A SHIFT IN THE MARKET.

 * July 22, 2024
 * By Jonalyn Cueto
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Mark Spitznagel, founder and chief investment officer of Universa Investments,
has a knack for making headlines with his bold market predictions. Known for his
contrarian approach, Spitznagel has successfully navigated financial crises
since establishing Universa in 2008. Despite the current calm in the markets, he
warns of an impending severe downturn, labeling the current situation as the
“greatest bubble in human history.”



Spitznagel’s investment strategy involves tail risk hedging, a complex approach
that loses money regularly but yields significant gains during periods of
extreme market volatility. His fund has outperformed traditional 60/40 stock and
bond portfolios during major financial disruptions, such as the 2008 financial
crisis, the 2015 Flash Crash, and the COVID-19 market meltdown in 2020.

Spitznagel predicts a major market selloff, with stocks potentially losing over
half their value. He acknowledges the difficulty in timing such a crash but
emphasizes the importance of hedging against it. He believes the current market
rally, driven by falling inflation and Federal Reserve easing, is a prelude to a
significant reversal. Spitznagel cites the shift in sentiment among
traditionally bearish strategists as a contrarian indicator, drawing parallels
to the dot-com boom’s final phase.

Spitznagel argues that the current economic excesses, including high public
indebtedness and overvalued stocks, surpass those of previous bubbles. He warns
that government interventions have created a “Mega-Tinderbox-Timebomb,” where
suppressed risks could ignite a severe economic downturn. He predicts the US
economy may enter a recession by the end of the year.


LONG-TERM INVESTMENTS

For individual investors, Spitznagel advises maintaining a passive investment
strategy, despite his dire predictions. He believes that staying invested in
index funds will yield better long-term results than relying on structured
products designed to mitigate market volatility. These products, he argues,
often incorporate the same derivatives that Universa uses, creating a long-term
drag on returns.

“Cassandras make terrible investors,” Spitznagel notes, emphasizing that the
best approach for most investors is to remain steady and avoid reacting to
market fluctuations. His advice underscores the importance of long-term
investment strategies over short-term market timing.



As markets remain near record highs, Spitznagel’s warning serves as a reminder
of the potential risks lurking beneath the surface.

Learn more about reprints and licensing for this article.


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