'Black Swan' investor sees the S&P 500 jumping another 12% — followed by the worst crash since 1929
- The boss of a "Black Swan" fund expects the S&P 500 to jump another 12% to a record 6,000 points.
- But Universa Investments' Mark Spitznagel expects the worst market crash in a century to follow.
A "Black Swan" investor expects the S&P 500 to climb another 12% and breach 6,000 points for the first time — and then suffer its worst crash since the Great Depression.
Mark Spitznagel, the founder and chief of Universa Investments, told Business Insider in an email:
"I've been saying this for a year and a half because people got 2022 so incredibly wrong (we're not in the 70s!). The Fed recklessly popped the greatest credit bubble in human history and now as people realize that the Fed needs to about-face, they're going to get increasingly juked the other way in a face-ripping rally. At the point of euphoria — which is coming — the high will be in and the market will crash worse than the global financial crisis."
He added: "What matters more than my views on this are how Universa's clients are positioned for it — for both a face-ripping rally and for the worst crash since 1929."
Universa specializes in protecting portfolios against extreme and unpredictable "tail risks" in markets. The firm's scientific advisor is Nassim Taleb, the author of "The Black Swan: The Impact of the Highly Improbable."
The S&P has soared by nearly 30% from its October lows to trade at record highs of more than 5,300 points. Investors have piled into stocks like Nvidia — up over 150% since the start of this year — as they wager Big Tech will be big winners from the artificial intelligence boom.
Stocks have also benefited from interest-rate cuts and unprecedented amounts of government stimulus during the pandemic. They've continued to climb despite the Federal Reserve hiking rates from nearly zero to north of 5% since 2022 to combat inflation.
Spitznagel has that too much easy money inflated asset and credit bubbles. He expects those bubbles to burst as steeper interest costs squeeze consumers and businesses and cause the national debt to balloon even faster.
'Tinderbox time bomb'
The Universa chief in March that ebullient investors were ignoring signs of trouble and assuming the market would keep climbing. He predicted stocks would keep rising, but said they could crash later this year and a recession might set in once the bubble bursts.
Spitznagel has previously on a "tinderbox time bomb," saying that efforts to stamp out crashes and recessions had paved the way for a greater catastrophe down the line. He's likened it to firefighters putting out smaller wildfires too early, leaving vast amounts of dry wood to fuel a far greater inferno in the future.
The author of "Safe Haven: Investing for Financial Storms" has been preparing for the worst for decades — a difficult approach as it requires enduring small losses on most days in anticipation of a massive gain at some unknown point in the future.
"It's like you're playing the piano for 10 years and you still can't play 'Chopsticks,'" Spitznagel told The New Yorker in 2002, "and the only thing you have to keep you going is the belief that one day you'll wake up and play like Rachmaninoff."