Report: 'Black Swan' fund manager Mark Spitznagel expects worst stock market crash since 1929

KUALA LUMPUR (May 7): “Black Swan” fund manager Mark Spitznagel said investors should avoid chasing the market or making decisions based on short-term US Federal Reserve (Fed) moves.

Spitznagel, chief investment officer of Universa Investments, is known for being a “permabear” when it comes to stock market outlook.

In a recent report in Business Insider, Spitznagel was quoted as saying that he expects further euphoria in the stock market before it tanks.

Spitznagel’s firm Universa Investments profits from market crashes via tail-risk hedging.

The report said that since last year, Spitznagel has warned about the interest expense that the US government will incur on its record US$35.5 trillion (RM168.27 trillion) debt, which ballooned when interest rates were low.

But Spitznagel is not interested in timing the crisis or the stock-market fallout.

“It’s not fair to call me a permabear,” he said.

While he sounded the alarm last year in interviews and a January 2023 investor letter seen by Business Insider, he also said that a rally before the crash was possible.

The rally is playing out now with extremely positive sentiment, evidenced by the 17 closing highs the S&P 500 has already made this year. Spitznagel said people are jumping into stocks because they fear missing out on an opportunity they think is getting away from them. Those participating in this rally won’t accept any negative sentiment coming their way; that’s what euphoria is, he said.

“Markets are alive. They move to get people positioned wrongly,” Spitznagel said.

“We are instinctually herding animals, and we are momentum-based. And when the market moves one way, we think that’s going to happen forever,” he added.

Spitznagel said investors need to worry about mistakes being made.

“We’re going to sell our position at the low, and we’re going to buy our position at the high. This is what people did. This is what all these analysts have told people to do in the last couple of years.

“We’re going to get the most bearish when the market looks the worst and we’re going to get the most bullish when it looks the best, but the markets zig in order to zag,” he said.

Spitznagel said he continues to expect a blowoff, and then expects a crash that will be the worst since 1929.

“And my simple reasoning for that is that we are witnessing the bursting of the greatest credit bubble in human history, and crashes are direct consequences of the bursting of credit bubbles,” he said.

Spitznagel’s main don’ts to mom-and-pop investors are: don’t chase the market, don’t time the market, don’t place too much confidence in its current direction, and don’t make decisions based on short-term Fed moves.

Instead, he advocated building a portfolio that’s positioned so that if the market goes down by 50%, investors won’t be squeezed.

“Don’t be the sucker that’s going to sell down there. And if the market is up 50%, don’t be the sucker that’s going to buy up there,” Spitznagel said.

“So, have a position where you’re sort of agnostic to that. That’s a big ask, but that’s basically what people are going to have to do in order to survive the next year or two,” he said.