The boss of a 'Black Swan' fund says Jeremy Grantham is right about the huge risks in markets — but warns 'Cassandras' are often terrible investors
Mark Spitznagelwarned the immense amount of liquidity in marketsposes major risks for investors.
Universa Investmentsboss advised against trying to predict the timing of the next crash.
Spitznagel runs Universa Investments, a hedge fund that specializes in profiting from rare, significant market events. He previously ran a "tail-risk" fund with Nassim Nicholas Taleb, the author of "The
The fund manager, who notched a 4,144% return in the first quarter of 2020 after the pandemic tanked markets, told Bloomberg that many investors don't recognize the risks of the Federal Reserve's plan to hike interest rates and withdraw economic support this year.
"There's a profound lack of appreciation for how dangerous the market is and how embedded all of this liquidity is in the financial system," Spitznagel said, noting the federal debt has ballooned to $30 trillion.
"There's no way to turn around, we're too far down the rabbit hole," he continued. "If you suppress enough wildfires, at some point you can't have any fires burn because they'll completely wipe out the entire ecosystem, and that's where we are today."
Spitznagel said he broadly agreed with Grantham, the market historian and
"Cassandras generally make very poor investors," he said, referring to the Trojan priestess in Greek mythology who was cursed to share true prophecies, but never to be believed.
Burry, the investor of "The Big Short" fame who called the housing crash, used "Cassandra" as his Twitter display name before deleting his account in November. The Scion Asset Management boss, who cashed in most of his US
Spitznagel told Bloomberg that people who diversify their assets to reduce volatility ultimately end up poorer. Excessive portfolio protection can do more damage to returns than the risks it staves off, resulting in a "cure that's worse than the disease" and a "Pyrrhic victory," he said.
Indeed, the goal of risk mitigation is to boost an investor's rate of compounding and therefore their wealth, by allowing them to safely take on more risk, Spitznagel said.
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