Spitznagel warned that the only way for the Federal Reserve to cut interest rates is for officials to see a clear weakening of the economy, which means that the US may experience a recession and a sharp market collapse before interest rates fall.
The Federal Reserve's interest rate cut may not bring the benefits investors are hoping for. Mark Spitznagel (Mark Spitznagel), a famous “black swan” investor and chief information officer of Universa Investments, believes that this is because the Fed can only relax monetary policy when the economy falls into recession and the market is in turmoil.
The Zhitong Finance App noticed that during a recent interview, Spitznagel issued a severe warning about the US stock market and economy.
According to CME's Federal Reserve Watch Tool, investors expect to cut interest rates once or twice in 2024, which is expected to benefit the stock market.
However, Spitznagel warned that the only way for the Federal Reserve to cut interest rates is for central bank officials to see significant economic weakness, which means that the US may experience a recession and market collapse before interest rates fall.
Spitznagel said, “Be careful about your wishes.” “People think it's a good thing that the Federal Reserve is dovish; they will cut interest rates... but they cut interest rates when the economy is clearly in recession, and in the case of a market collapse, they will cut interest rates in a panicked manner.”
According to a survey conducted by the National Association of Commercial Economics, most economists believe that the US may avoid a recession this year. But high interest rates are still likely to cause the economy to decline due to tightening the financial situation of businesses and households. Spitznagel said that considering the huge debt burdened during the past 10 years when interest rates were extremely low, the possibility of an economic recovery is particularly obvious.
“The US economy is based on low interest rates,” he said. “Resetting interest rates like ours would have a delayed effect.”
Spitznagel's hedge fund is known for being extremely bearish on the market, and its advisors include Nassim Taleb (Nassim Taleb), author of “The Black Swan.” Both commentators have issued severe warnings about the stock market and the economy over the past year. Spitznagel warned in particular about one of the biggest debt bubbles in history, which could trigger the worst stock market crash since 1929.
Universa's investment strategy is expected to profit from the seemingly unpredictable Black Swan event. During the pandemic, the fund's return on investment was 4144%.
Most forecasters on Wall Street are cautiously optimistic about the stock market and economy for the rest of the year. They assume that inflation continues to fall while the economy continues to grow. According to AAII's latest investor sentiment survey, 38% of investors said they are optimistic about the stock market in the next six months.