2023-12-26 05:50:04
Mark Spitznagel, founder of Universa Investments, a “black swan” hedge fund that specializes in profiting from tail risks, warned that the United States is in the midst of “the largest credit bubble in human history” and that a market crash is imminent.
Spitznagel warned not long ago that the market crash could be worse than that of 1929, and now he is even more convinced that a crash is approaching due to the huge bubble in the US credit market.
“We’re in the biggest credit bubble in human history, and that’s all because of artificially low interest rates, artificial liquidity, and that’s really changed a lot since the financial crisis,” Spitznagel said.
He said credit bubbles are over, they will burst and there is no way to stop them. Debts need to be repaid or defaulted, and the current debt burden has reached a point where it cannot be repaid.
Spitznagel is a protégé of Nassim Nicholas Taleb, author of the 2007 bestseller “The Black Swan.” Taleb is also an advisor to Universa Investments.
Other market experts also pointed to impending credit events as rising interest rates take their toll on the economy. Bank of America said debt accumulated during ultra-low interest rates over the past decade is about to run into trouble, adding that it expects about $1 trillion in private debt to potentially default as borrowing costs rise.
Defaults and delinquencies on risky corporate debt are already on the rise. Charles Schwab said total corporate defaults and bankruptcies could surge by the end of the year and could peak in the first quarter of 2024.
There are also problems with the public debt situation, with total U.S. debt exceeding $33 trillion for the first time this year. Goldman Sachs estimates that under a long-term higher interest rate regime, the total cost of U.S. debt balances could reach a new peak in 2025.
The good news is that the economy is growing, but even that is a “pyrrhic victory,” Spitznagel said.
“Trading victory now for pain later, that’s what monetary interventionism does,” he said. “It gives you something now that you have to pay a lot of interest on later. The same goes for the federal debt, of course, which is our children’s and grandchildren’s business.” The problem of future generations.”
He emphasized that as the economy’s credit bubble bursts, the pain will likely be felt across the market.
Despite the view that markets will be volatile, Spitznagel added that investors should not hesitate to invest in stocks for the long term. He pointed out,S&P 500 IndexOutperformed all hedge funds on the market over the past 20 years. He said that if he could only execute one deal in the next 20 years, this would be the only investment he would make.
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