Billionaire investor who predicted 2000 and 2008 crashes says market euphoria will soon wear off, warns of ‘Black Swan event’

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Mark Spitznagelco-founder of Universa Investments, believes the stock market is in a “gold bullion phase” following the Federal Reserve’s rate cuts and China’s stimulus measures. After a crash last month, the market has soared to new highs, but Spitznagel warns that this euphoria will not last in an interview with Bloomberg.

He predicts an impending recession and believes the current rally is only temporary.

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Spitznagel, known for his focus on hedging “tail risk,” which protects against extreme and unexpected market events, says the biggest market bubble in history is about to burst. He predicts stagflation in the future, where the Fed will have to act, but it won’t be enough to save the economy.

Spitznagel has had success hedging through large market declines by using out-of-the-money put options as a way to “buy insurance” against market turmoil. Buying offers of the general market through the SPDR S&P 500 ETF Trust (NYSE:SPY) or similar ETFs with broad exposure could be a way to protect against market volatility.

Spitznagel said that while the market may continue to rise in the short term, it will soon break out of the Goldilocks zone, potentially by the end of the year. With the recent “non-inversion” of the yield curve, Spitznagel feels the market is now in “black swan territory.”

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What is a Black Swan event: A black swan event is an unpredictable event that leads to market volatility. The COVID-19 market crash is a recent example of a black swan event.

He also criticized traditional investment strategies such as diversification, calling them a “big lie”. He argues that modern portfolio theory has distracted investors, often making them poorer in the long run. Instead, he urges investors to focus on how their portfolios will perform in both good and bad markets.

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According to Spitznagel, the key is to hedge against your own trends, not just market movements. Instead of fixating on what the market will do next, investors should think about how they will react in boom and bust scenarios to avoid emotional mistakes like selling low and buying high.

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This article Billionaire investor who predicted 2000 and 2008 crashes says market euphoria will soon wear off, warns of ‘Black Swan Event’ originally appeared on Benzinga.com