TYB is not a crime and we are in favor of it as much as the next person with a full position.
But rarely do you see it as bold as this. A reporter can call these guys every working day of his life and hear some new thoughtful and nuanced version of doom. Which doesn’t mean they are wrong. It’s just world-class TYB.
Black Swan Fund Manager Sees ‘Tinderbox-Timebomb’ in Financial Markets
By Sonali Basak
(Bloomberg) — Universa Investments, the hedge fund advised by “The Black Swan” author Nassim Taleb, told clients that ballooning debts across the global economy are poised to wreak havoc on markets rivaling the Great Depression.
“It is objectively the greatest tinderbox-timebomb in financial history — greater than the late 1920s, and likely with similar market consequences,” Mark Spitznagel, the firm’s chief
investment officer, wrote in a letter to investors this week obtained by Bloomberg.
On Friday, Treasury Secretary Janet Yellen said she’s satisfied with US jobs and inflation data but did not want to downplay recession risks. While the Bloomberg Economics model puts the odds of a recession this year at 100%, some predict a mild downturn due to a strong labor market and easing inflation.
Universa is a so-called tail-risk fund, designed to protect investors during the toughest of market circumstances. These types of funds have an incentive to predict dire economic conditions, as they thrive during market downturns. Spitznagel has long criticized central banks for keeping interest rates too low, predicting last year that “if this credit bubble ever pops, it’s going to be the most catastrophic market failure that anyone has ever read about.”
In the letter this week, he added new fiery rhetoric around global debt levels. “The correction that was once natural and healthy has instead become a contagious inferno capable of destroying the system entirely,” he wrote. “The world is just too levered today, the debt construct just too big.”
Hedge fund managers lost more than $200 billion last year, according to LCH Investments, spurring a debate about ways to prepare for a downturn. Universa’s strategy could have a 402% average return on invested capital if the S&P 500 drops 10% in a month, according to Spitznagel. That same payoff could be 10,251% if the index crashed 30%, he said in the letter.
“This payoff profile is Universa’s core competency,” Spitznagel said. “We’ve been refining it for decades.” If an investor allocated 2% of its portfolio to Universa, its compounded annual growth rate would be 10.4% over the past five years, according to the letter. Universa didn’t specify its returns for 2022, when the S&P 500 finished the year down 19.4%.
Even last year “wasn’t much of a favorable year, but our extra bow string more than compensated in other years,” he said.
The original article appeared at bloomberg.com.
