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Black Swan Manager Spitznagel Says Market Dangers Unappreciated


(Bloomberg) — Even after a correction in tech stocks and surging yields on U.S. government bonds, investors still don’t understand the risks they’re taking in equity and debt markets, according to Mark Spitznagel, manager of the best-known fund protecting against so-called black swan events.

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“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, the founder and chief investment officer at Miami-based Universa Investments, said in an interview Tuesday on Bloomberg Television.

Like others such as GMO’s Jeremy Grantham, Spitznagel says asset prices have been grossly inflated by years of rock-bottom interest rates and quantitative easing. Where he differs is in his approach to an impending crash.

Spitznagel said he doesn’t believe in trying to time the market. Instead, Universa tells clients to think of hedges not as a source of profit but rather as a kind of catastrophe insurance they should have at all times. With the knowledge that they’re protected in the event of a meltdown, those investors can, in theory, take risk without the need for traditional diversification in the form of Treasuries, gold or hedge funds, he said.

“I don’t agree that we can tactically trade this, that we can time this,” he said.

Grantham calls the market a “super bubble” and said a collapse has been underway since November. He advises getting out of U.S. stocks, owning commodities and gold, and holding some cash.

Wild though they may have felt, the gyrations in stocks through the early weeks of this year haven’t been sharp enough to trigger the hedges that produced a windfall for Universa clients at the outset of the pandemic.

“Markets move a lot more than last month,” Spitznagel said. “Those types of moves, those aren’t the kinds of things that are really important, those aren’t the things that are consequential.”

Back in March 2020, as stocks collapsed and volatility soared, Universa was able to reap enormous profits on its option trades. It told clients they made a 3,612% return that month and 4,144% in the first quarter of 2020.

The California Public Employees Retirement System had been one of those clients, but it infamously scrapped one of those hedges and so missed out on a $1 billion payout.

At the time, Universa protected some $6 billion in client asset. That has since grown to more than $15 billion.

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