"Black Swan" fund manager: "Golden Girl" market trend will continue, but US stocks will sharply turn when the Federal Reserve cuts interest rates.

According to the Zhongtong Finance APP, Mark Spitznagel, the founder and chief investment officer of Universa Investments, said that the stock market may soar and then sharply turn around when the Federal Reserve begins to cut interest rates.

Spitznagel said in an interview in New York this week, "Things will get very bad at that time."

Spitznagel expressed concern about the market's reliance on the Federal Reserve's support for low interest rates and bond purchase programs over the past decade. Currently, the Federal Reserve is trying to reverse this situation. Earlier this year, he told investors that we are living in the "largest time bomb in financial history," even worse than the situation before the Great Depression in the late 1920s.

"This is my crazy theory: I believe that our interest rates will also return to zero. I mean, many people will think I'm crazy," Spitznagel said. "But please remember, when the credit bubble bursts, it is a very serious deflation event. It's like holding a pile of cash and setting it on fire."

Universa is a tail risk fund, which means its purpose is to protect investors when the market falls. Tail fund managers tend to warn of the next crash and sell their strategies to clients as insurance policies against extreme market volatility. The largest payments made by Spitznagel to investors occurred during extreme market crashes, such as the one triggered by the COVID-19 pandemic in March 2020.

He said this week that he believes the Federal Reserve's quantitative tightening measures will be difficult to implement and may even have to start easing monetary policy again. "I think they will come back for revenge, I really think so."

The Federal Reserve's balance sheet peaked at $9 trillion in 2022 and has now fallen to less than $7.9 trillion. This is still about $3.7 trillion higher than the level at the beginning of 2020, when the COVID-19 pandemic prompted central banks to provide even greater support to the market.

Spitznagel said he believes the Federal Reserve will need to reiterate its support measures as he sees the possibility of a recession. However, before the crash, the market will continue to rise because "the Federal Reserve has just paused - this is a good start - and people to some extent think we are about to collapse," he said.

"We may postpone the recession until next year, and the yield curve has not reversed for a while," Spitznagel said. "Putting all these things together, we are heading towards a vertical drop. But people's emotions are very, very negative."

The S&P 500 index has recorded a week and a half of gains, especially boosted by the dovish signals recently sent by Federal Reserve policymakers. Although borrowing costs in the United States have risen to a 22-year high, yields have recently started to decline.

Spitznagel said that the lagging effect of such high interest rates has not been fully reflected in the entire economy, and future interest rate cuts will reflect borrowers' inability to bear higher borrowing costs after taking on debt.He said, "We are likely in a temporary 'golden girl' period now, and no one expected risk assets to experience more squeezing and expansion. This is what I have been writing and talking about for the past year." "Then the bear dad appeared, and the reaction was too late."