Wall Street 'Black Swan' Hedge Fund Titan: "Rate Cuts Signal Market Collapse"

"Currently Need to Utilize the 'Goldilocks' Market"

As disagreements continue over the timing of the U.S. Federal Reserve's (Fed) interest rate cuts, Mark Spitznagel, Chief Investment Officer (CIO) of Universa Investments, a Wall Street 'Black Swan' hedge fund heavyweight, has issued a warning about the start of rate cuts.

On the 22nd (local time), Spitznagel CIO stated in an interview with major foreign media, "Even if you want (rate cuts), you need to be cautious."

Wall Street Sign (Asia Economy = Yonhap News)

Universa is a tail risk fund, a so-called Black Swan hedge fund that profits from sudden market shocks such as the 2008 global financial crisis or COVID-19. It is famous for recording a return of 4000% in the first quarter of 2020 when the global economy was shaken by COVID-19.

Expectations of Fed rate cuts have been a driving force behind this year's U.S. stock market, but as inflation has not eased, the outlook for rate cuts has retreated. At the beginning of this year, the dominant forecast was that rates would be cut six times starting in March, but recently, opinions have emerged that rate cuts within the year are unlikely.

Spitznagel CIO said, "People think the Fed is dovish and that if rates are cut, it will be a good thing. However, the Fed will cut rates only when it becomes clear that the economy is turning into a recession, and it will cut rates in a panic when the market collapses."

Some analysts argue that the U.S. economy is in a 'no landing' state, continuing to grow despite high inflation. Spitznagel CIO is skeptical of this claim. He said, "This time is no different," and warned that if rates continue to rise, the largest credit bubble in history will burst.

Although the Fed has maintained high interest rates since early 2022 to curb the surge in inflation, he believes that the effects of the extremely accommodative monetary policy after the 2008 financial crisis have not yet disappeared from the economy. Spitznagel CIO said, "The U.S. economy was built on low interest rates. When rates are reset, there is a lag effect."

He also noted that the market expects the Fed to suppress inflation without negatively impacting the economy, advising investors to take advantage of the current 'Goldilocks' environment (an ideal economic situation that is neither too hot nor too cold).