Bloomberg TV
- Mark Spitznagel warned of a painful market crash fueled by the Federal Reserve's interventions.
- The Universa Investments chief questioned whether gold, bonds, or crypto can serve as safe havens.
- Spitznagel advised investors to reexamine how they mitigate risk and diversify their portfolios.
- See more stories on Insider's business page.
Mark Spitznagel predicted a historic market crash and warned the Federal Reserve's stimulus efforts would exacerbate the downturn, in a Yahoo Finance interview this week.
The investor, whose Universa Investments hedge fund returned 4,144% in the first quarter of 2020, also questioned the value of gold, bonds, and cryptocurrencies as safe havens. Moreover, he urged investors to rethink how they mitigate risk, and to stop mindlessly diversifying their portfolios – a key theme in his new book, "Safe Haven: Investing for Financial Storms".
Universa specializes in tail-risk investment strategies that pay off during periods of market stress. Spitznagel is a close associate of Nassim Nicholas Taleb, the author of "The Black Swan: The Impact of the Highly Improbable." The pair founded the now-defunct Empirica Capital, and Universa counts Taleb as an advisor.
Here are Spitznagel's 12 best quotes from the interview, lightly edited and condensed for clarity:
1. "The way Universa invests is really probably the most bearish expression that one could have as an investor."
2. "The goal of risk mitigation, like the goal of investing, should be to raise our rate of compounding over time. Where people get it wrong is thinking about it as a trade-off, when there really is another way."
3. "Any punter can devise a trade that does well in a crash. The key is how do you do in a crash relative to the rest of time."
4. "The Federal Reserve is manipulating the most important information parameter in the economy, and that's the interest rates." - Spitznagel described financial markets as a "homeostatic system" that responds to corrective feedback, and said the Fed was messing with the system by keeping interest rates artificially low, incentivizing people to borrow instead of save.
5. "When you drive on ice, you have this delayed feedback so that when you do something, nothing happens until all of a sudden it does. That's what central-bank interventions do to this homeostatic system, they delay it and they concentrate it through time." - Spitznagel said delaying the corrective process would worsen the inevitable crash.
6. "I have this expectation of destruction in the financial markets. That doesn't necessarily mean that someone should just hide away, because that may not be the best strategy either." - Spitznagel added that he's agnostic on whether there's a crash coming or not, as he's set up his portfolio to win either way.
7. "Gold is pretty darn good. You just have to understand there's been a lot of noise around it." - underlining gold's value as a safe haven, while noting that it performs best when inflation expectations are high, and historically it's been inconsistent in mitigating portfolio risk.
8. "Cryptocurrencies are a fundamentally terrific idea, and I'm aligned with the thinking behind them - the destruction of our money through the actions of central banks, and the dangers of the banking system as a result of that."
9. "It's turned itself into a casino, which is a very bad idea. It's killing the golden goose in many ways. It's massively noisy and not a very safe haven at all." - discussing crypto's value as a safe haven.
10. "It would be very hard for bonds going forward to provide cost effectiveness. Bonds really represent the canonical case of the mean-variance approach of lowering the volatility in a portfolio, but being poorer because of it."
11. "No book is ever gonna tell you what to do successfully as an investor."
12. "There's so much storytelling, narrative, even snake oil being sold in the name of this dogma of diversification. It's just making people poorer and not even providing very much risk mitigation."