I’m not one to listen to the bearish people who scour the web predicting a crash. However, there are some out there who proclaim that an 80% crash is possible. Others argue that we could see a complete decimation of the U.S. dollar (hyperinflation that makes the Weimar Republic look reasonable) or that gold is magically heading to $10,000 per coin. That’s one way to get someone’s attention. But it’s not a way to offer any reasonable assessment of the market – mainly based on probabilities. But, of course, that doesn’t mean that I’m not looking for extreme outlier events – those Black Swans you tend to hear so much about. So, who do I turn to when I’m looking for macroeconomic analysis? Some of the top minds in the markets, Scott Minerd and Mark Spitznagel
Mark Spitznagel, CIO of Universa Investments
I tend to follow the work of Mark Spitznagel, the founder and CIO of Universa Investments. His firm focuses on low probability events that can have massive, asymmetric returns. The general thought is that Black Swan events can’t be predicted, but they tend to be justified in hindsight. People wonder how they missed those crises or major world-changing events. On the negative side, there was September 11, the housing crisis, and COVID-19.
On the positive side, there was the ability to create a vaccine in less than a year or the birth of the internet. Spitznagel makes small bets on events that could change the course of the market quickly. Typically, they are mispriced options with low probability but massive payoffs. For example, during the onset of the COVID crisis, his firm generated more than 4,000% in a month. Yep, that’s the sort of person I’m listening to.
Scott Minerd, CIO of Guggenheim Partners
Who else do I listen to? Scott Minerd, the CIO of Guggenheim Partners. On Thursday, Minerd appeared on Bloomberg and said that a 15% pullback is possible by October. Minerd has been deadly accurate about inflation, the Fed’s challenges around COVID, and the market’s direction since February 2020.
This week, he warned that the Delta variant hadn’t been properly assessed on its impact on the economy. In addition, he warned that the Fed would soon be focusing on tapering. That creates conditions for challenges in this market over the next few months. Add the ongoing challenge of the U.S. and China engaged in geopolitical tensions while government spending programs abate… you have a bearish situation.
Scott Minerd and Mark Spitznagel provide terrific insight. As I look out into the prism of possibility, I’m anticipating another pullback. The key problem is that trying to time it has been tough for a long time. But proper momentum analysis can give us clues into essential measures like buying pressure (or the lack of it). We have been in a negative momentum environment for a while now. And even if it doesn’t feel like it, remember what I said to you yesterday. We continue to operate in an environment where more stocks are falling every day than rising. I exercise caution right now.