Mark Spitznagel, founder of the well-known black swan fund Universa Investments, said that as the US stock market hits record highs and traders become increasingly confident of a soft landing of the economy, the stock market seems to be in the "Goldilocks" zone. He warned that gold, Bitcoin and the US stock market will flash crash before the end of the year due to secondary effects, including a slowdown in the US economy.
In September, the Federal Reserve finally launched its first round of interest rate cuts in four years, cutting interest rates by 50 basis points in one go. Coupled with the recent stabilization of US economic data and the gradual fading of concerns about economic recession, global stock markets have generally risen recently, with US stocks setting new historical highs several times after the interest rate cuts.
However, Spitznagel warned in an exclusive interview with Bloomberg on Thursday (October 2) that as stocks hit record highs and traders become increasingly confident about a soft landing for the economy, investors should remain vigilant about secondary effects.
He further pointed out that even if the Fed cuts interest rates, an economic slowdown could lead to a sudden market crash. He expects global markets to crash before the end of this year, which could be caused by an economic slowdown.
“When the yield curve inverts and then reverses again, and bells start ringing, that’s when you enter black swan territory, and black swans are always lurking, but now we’re in their territory,” he said.
The S&P 500 has hit 42 all-time highs since 2024, driven by the resilience of corporate profits, the Federal Reserve's rate-cutting cycle and expectations that the U.S. economy will avoid a recession, but Spitznagel warned that the Fed's reduction in borrowing costs should worry investors, who should think more about how stock prices will perform next year.
Looking ahead to future market trends, Spitznagel predicts that gold will fall, cryptocurrencies will fall along with risky assets, bonds may be a safe haven, and volatility will increase in the coming months.
Looking back to July this year, Spitznagel mentioned that the U.S. stock market is in the "biggest bubble in human history" and will usher in the final carnival. Once the Federal Reserve starts to cut interest rates, the market trend may reverse, and a large amount of selling pressure will follow. At that time, the market value of U.S. stocks will evaporate by more than half.
In April, he told Reuters: "Be careful what you wish for, people think a dovish Fed is a good thing and they're going to cut rates, but they cut rates when it's clear the economy is in a recession. But when the market crashes, people panic."
According to a survey conducted by the National Association for Business Economics, most economists believe that the United States may avoid a recession this year. But high interest rates could still lead to a tightening of corporate and household finances, triggering a recession. Spitznagel said the possibility of an economic adjustment is particularly evident given the huge debt taken on when interest rates were ultra-low over the past decade.
Spitznagel, formerly the head trader for Black Swan author Nassim Nicholas Taleb, has racked up some astonishing achievements since founding Universa Investments in 2008, including making $1 billion in a single day.
His trading strategy usually loses money almost every day because he uses complex strategies and can only make catastrophic fortunes during periods of extreme volatility, such as the 2008 financial tsunami, the 2015 flash crash, and the stock market crash caused by the 2020 coronavirus pandemic. These are enough to make his trading performance beat the traditional 60/40 stock-bond investment portfolio.
