- Black Swan investor Mark Spitznagel warned that investors should be wary of future Fed rate cuts.
- Spitznagel told Reuters last week that’s because the Fed is only cutting interest rates in response to the economic downturn.
- He predicted that there could be a recession and a major stock market crash in the United States before interest rates fall.
A rate cut by the Fed may not be the benefit investors were hoping for. According to Mark Spitznagel, an investor of Black Swan fame, the Fed is only likely to ease monetary policy if the economy is in recession and markets are turbulent.
In a recent interview with Reuters, the CIO of Universa Investments issued a stark warning about stocks and the economy.
According to the CME FedWatch tool, investors expect one or two rate cuts in 2024, which is expected to be bullish for stocks.
But the only way the Fed will cut rates is if central bankers determine that the economy has weakened significantly. That means the U.S. could experience a recession and a market crash before interest rates come down, Spitznagel warned.
“Be careful what you wish for,” Spitznagel told Reuters. “People think it’s a good thing that the Fed is dovish and they’re going to cut rates…but they’ll cut rates when it’s clear that the economy is heading into a recession. They’re going to cut rates.” When the market is crashing, you panic. ”
Most economists think the U.S. has a good chance of avoiding a recession this year, according to a survey conducted by the National Association for Business Economics. However, high interest rates continue to tighten the financial conditions of businesses and households, potentially causing an economic downturn. Mr. Spitznagel said the possibility of an economic adjustment is especially significant given the huge debts incurred over the past decade of ultra-low interest rates.
“This economy is built on low interest rates,” he said. “When you reset interest rates like we do, there is a lag effect.”
Mr. Spitznagel’s hedge fund is known for its ultra-bearish stance on the market, and its advisors include Nassim Taleb, author of “Black Swan.” Both commentators have issued stark warnings about stocks and the economy over the past year, with Mr. Spitznagel in particular warning of the largest debt bubble in history that could cause the worst stock market collapse since 1929. .
Universa’s investment strategy is poised to profit from seemingly unpredictable black swan events. The fund famously achieved a 4,144% return on investment during the pandemic-induced stock market crash.
Most Wall Street forecasters share a cautiously optimistic view of both stocks and the economy for the rest of the year, assuming economic growth continues while inflation continues to trend downward. According to AAII’s latest investor sentiment survey, 38% of investors are bullish on stocks over the next six months.
