A ‘Black Swan’ investor warns of an epic debt bubble – and says stocks are overvalued and set to plunge
Aug 7, 2023, 7:09 AM EDT
- Mark Spitznagel flagged a huge credit bubble, slammed the Fed, and endorsed Warren Buffett’s advice.
- The Universa Investments boss warned stocks and debt levels are too high and will end in disaster.
- Retail investors should buy an index fund, not dump stocks for gold or trade options, he said.
The boss of a “Black Swan” fund has raised the alarm on dangerous amounts of debt, slammed the Federal Reserve for putting financial markets and the US economy at risk, and advised retail investors to protect themselves by following Warren Buffett’s simple advice.
“We are in the greatest credit bubble in human history,” Mark Spitznagel told Fortune in a recent interview. The Universa Investments boss added that we’re “living in an age of leverage, an age of credit, and it will have consequences.”
Spitznagel, whose fund specializes in hedging against extreme and unpredictable “tail risks,” was referring to ballooning amounts of household and federal debt. He predicted steeper borrowing costs would hinder economic growth, force governments to restrict their spending, and lead to central banks keeping interest rates lower then they’d like.
Universa’s founder and chief investor also panned the Fed for cutting rates to almost zero and buying excessive amounts of bonds during the COVID-19 pandemic. The central bank’s loose monetary policy may have staved off a recession, he said, but it also drove up asset prices and debt levels to dangerous highs — paving the way for a much bigger disaster down the line.
Spitznagel, the author of “Safe Haven: Investing for Financial Storms,” argued the Fed has created a “tinderbox” economy. He compared its strategy to firefighters putting out small wildfires too soon, leaving huge amounts of fuel for a more catastrophic fire in the future.
The Universa boss, who counts “The Black Swan” author Nassim Taleb as an advisor, also warned stock investors are too complacent today. They’re so focused on declining inflation, resilient corporate earnings, and the buzz around AI and other technologies that they’re overlooking the fact that equities are overvalued and there are major risks to markets, he told Fortune.
Spitznagel pointed to Warren Buffett’s go-to gauge of stock-market value, the so-called Buffett Indicator, as evidence that valuations are stretched. He also recommended retail investors avoid betting against the market or stocking up on haven assets like gold or US Treasuries to weather a downturn, as he views their own rash decisions such as panic-selling as a greater risk to their portfolios.
Instead, he advised them to follow Buffett’s age-old suggestion to invest in a low-cost, broad index fund like a S&P 500 tracker. Given the legendary investor and Berkshire Hathaway CEO’s endorsement, Spitznagel said, it’s “probably pretty good advice.”
Source: Markets Insider
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