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Financial markets are heading for a “huge crash,” according to Mark Spitznagel.
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The bearish hedge fund manager told Intelligencer he believes the U.S. is engulfed in the largest credit bubble in history.
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Bursting this bubble could “burn the whole forest,” he warned.
One of Wall Street’s most pessimistic hedge fund managers is sounding the alarm about a looming stock market crash, as the United States finds itself in the midst of “the largest credit bubble in history.” ‘humanity’.
Mark Spitznagel, CIO of Universa Investment, who counts “The Black Swan” author Nassim Taleb among his advisors, has already warned of a stock market crash even worse than that of 1929. That crash is getting closer and closer, thanks to the massive bubble in the U.S. credit market, Spitznagel said in a statement. interview with Intelligencer on Monday.
“We are in the greatest credit bubble in human history.” » said Spitznagel. “This is entirely due to artificially low interest rates and artificial liquidity in the economy, which is something that has actually happened on a massive scale since the great financial crisis.
“And credit bubbles end. They burst. There’s no way to stop them from bursting. Debts have to be paid, otherwise they result in default. And of course, the debt burden today is at a level that cannot be repaid,” he warned.
Other market experts have warned of a upcoming credit event as rising interest rates weigh heavily on the economy. Debt accumulated over the past decade when interest rates were extremely low is about to run into trouble, according to Bank of America, which estimates that around $1 trillion in private debt could default as borrowing costs rise.
Defaults and unpaid debts on high-risk corporate debts are already on the rise. The total number of corporate defaults and bankruptcies is expected to increase through the end of the year, with a likely peak in the first quarter of 2024, according to Charles Schwab.
At the same time, problems are also looming regarding public debt, with the Total US debt hits $33 trillion for the first time this year. Under a regime of higher and longer interest rates, the total cost of US debt could reach a new record by 2025estimated Goldman Sachs.
The good news is that the economy is growing, but even that constitutes a “Pyrrhic victory,” Spitznagel said.
“You accept a victory now only to suffer later. That’s exactly what monetary interventionism does: it gives you something now, and you have to pay for it with lots of interest later. And of course, that’s also that the federal debt – that’s our grandchildren’s problem.”
All of this creates problems for the broader market, which could struggle as the credit bubble deflates across the economy.
“It would destroy all predictions,” Spitznagel said of the credit bubble bursting. “So I’m certainly not saying I don’t think there’s going to be a crash. I think there’s going to be a huge crash coming,” he added.
This crisis may not be far away either, and an event like the one Spitznagel predicts could cause interest rates to plunge to “very, very low” levels within “a year or two,” he said. he declared.
Despite the turmoil he foresees in the markets, investors should not hesitate to invest in stocks for the long term, Spitznagel added. He saw the S&P 500 outperforming every hedge fund on the market over a 20-year period, adding that it was the only investment he would buy if he could only execute one trade over the next two decades.
Read the original article on Business Insider