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The market is headed for a 'tinderbox-timebomb' that will be worse than the 1929 crash, Black Swan fund manager says

Markets Insider 1/31/2023 (Jennifer Sor)
Nassim Taleb. Mohd Zakir/Hindustan Times via Getty Images © Mohd Zakir/Hindustan Times via Getty Images Nassim Taleb. Mohd Zakir/Hindustan Times via Getty Images
  • Brace for a recession and stock market crash akin to 1929, Universa Investments warned in a client note.
  • The hedge fund is advised by author and market expert Nassim Taleb. 
  • The fund has long-predicted a financial crash, and warned that rising debt levels posed a "timebomb".

Get ready for a "tinderbox timebomb" that will be even worse than the 1929 stock market crash, the manager of the "The Black Swan" hedge fund warned this week.

Universa Investments is advised by "The Black Swan" author Nassim Taleb, who called the financial crash that spurred the 2008 recession. In a recent letter to its investors, the fund warned the economy was headed for another financial collapse that could mirror the market crash leading to the Great Depression. 

"It is objectively the greatest tinderbox-timebomb in financial history – greater than the late 1920s, and likely with similar market consequences," Universa's chief investment officer Mark Spitznagel said in the letter seen by Bloomberg on Tuesday.

Spitznagel has long-predicted the stock market is on a dangerous path to collapse. His bearishness recently has largely been due to the last decade of the Federal Reserve's ultra-low interest rate policy, which flooded markets with liquidity and fueled excessive borrowing. That's created a "credit bubble," Spitznagel said, predicting it would eventually burst and spark a "catastrophic market failure." 

His view mirrors that of other doomsday commentators, such as top economist Nouriel Roubini, who warned that high debt levels and rising interest rates would cause a severe recession and a debt crisis that could shatter the economy. Michael Burry, "The Big Short" investor who bet against the US housing market leading up to its crash, has also said markets were exiting an era of speculation, and stocks were headed for the "mother of all crashes."

"The correction that was once natural and healthy has instead become a contagious inferno capable of destroying the system entirely," Spitznagel added, predicting a "slowcession," akin to the Great Depression that ravaged the global economy nearly a century ago. "The world is just too levered today, the debt construct just too big," he warned.

Spitznagel added that Universa was shorting the S&P 500, and the fund would gain 402% if the index dropped 10% in a month, or 10,251% if it plunged 30%, he said. He didn't disclose how much the fund gained amid the S&P 500's dismal performance in 2022, but said the fund had a 55% return over the past five years.

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