Mark Spitznagel, chief investment officer and founder of Universa, believes the bubble burst will eventually come and that gold and commodities will "become real trading opportunities again" after the epic crash.
In an interview, Spitznagel said: "This time is not different, and anyone who says it's different hasn't really paid attention. The only difference is that this bubble burst is bigger than we've seen before."
Universa is a $16 billion hedge fund that specializes in mitigating the risk of "black swan" events.
Spitznagel is a former trader and a protégé of Nassim Nicholas Taleb, author of the 2007 bestseller “The Black Swan.”
Spitznagel believes recent signs of a cooling economy and a peak in the stock market, including rising unemployment, growing consumer caution and increased market volatility, should not be ignored.
"This is a classic process of contraction, peak, inversion and then recession," he said. "I would be surprised if we are not in recession by the end of this year."
Spitznagel worries that excessive debt in the global economy and the Federal Reserve's "money printing" behavior will lead to a period of low growth and high inflation, known as stagflation.
He believes that when the economy and the market collapse, the Fed will be forced to take "heroic actions" to save the economy and the market, but it will only be a "Pyrrhic victory." Cutting interest rates, restarting quantitative easing, or launching new untested stimulus measures will not be enough to prevent consumers and investors from suffering heavy losses. When the Fed's efforts begin to take effect and help stabilize the economy, stagflation will become a problem.
“This looks like a recovery, but money printing can only do so much before it undermines economic growth,” Spitznagel said. “As Friedman wrote in the late 1960s, all that money printing eventually leads to stagflation once money printing and inflation become expectations.”
“Money printing never has and never will create wealth. Therefore, after the next epic crash, expect gold and commodities to become a real trading opportunity again,” he noted.
Yet while Spitznagel does worry that a recession is coming, that the stock market bubble is about to burst, and that stagflation is a long-term risk, he also offers a qualification to his long-term pessimism.
“I don’t think we’re going to have a Great Depression,” he said. “I’m not one of those people who predicts the end of the world. I just don’t think we’re going to like what we have to do to save this artificial, heavily manipulated bubble that we’re all living in.”
Finally, Spitznagel warned that bubbles usually end at extremely optimistic highs, and he believes that there is still room for upside in the final leg of our current bubble. For investors, this means that shorting the market is not a good idea.
“I want to clarify my position here, I think the market is going to have one final crazy rally that is going to squeeze out those bearish investors,” he said.
Article forwarded from: Jinshi Data
