Black swan hedge fund says Fed rate cuts will signal market crash

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NEW YORK, April 22 - While U.S. financial markets debate the timing of interest rate cuts, one tail-risk hedge fund is warning that investors should make the most of recent economic optimism while it lasts, as a shift to lower rates will signal a dramatic market crash.

Spitznagel argues that such a shift would likely take place only when economic conditions deteriorate, creating a challenging environment for markets. Some of the funds, including Universa, were big winners during the extreme dislocations that rocked markets in the early days of the Covid-19 pandemic in 2020.

The Fed has raised interest rates by 525 basis points since early 2022 to head off a surge in inflation. Spitznagel believes, however, that excesses built up in the years of ultra-loose monetary policy that the U.S. saw since the 2008 global financial crisis have not yet been squeezed out of the economy.

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