‘Greatest Credit Bubble’ Ready to Pop?

Mark Spitznagel is paid to be prepared for when the market’s weakest links are exposed in a big way. “If this credit bubble ever pops, it’s going to be the most catastrophic market failure that anyone has ever read about -- but let’s hope that doesn’t happen,” Spitznagel, Miami-based Universa’s chief investment officer, said Thursday in a telephone interview. “We’ve gotten ourselves into a tough spot.”

Spitznagel, 51, insists he’s not a “doom and gloomer.” He’s long been critical of central banks keeping interest rates near-zero or even negative, which he says has propped up asset values and encouraged excessive borrowing. Officials around the world are now tightening monetary policy to combat elevated inflation.

His warning follows other cautious remarks this week from JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who told investors to prepare for an economic “hurricane,” and Goldman Sachs Group Inc. President John Waldron, who said he’s seen an unprecedented number of shocks and expects “tougher economic times ahead.”

Traditional flight-to-quality assets like US Treasuries and gold are failing investors this year, adding to the pain, Spitznagel said. In his 2021 book “Safe Haven,” he argued both were inconsistent at mitigating risks.

What will happen next? Well, with continued inflation, continued stock decline for the next 2 quarters will force large companies to begin the massive layoffs by years end to clear the payroll for 2023. This is the standard playbook when earnings are down. The quick fix is always layoffs at end of year. Millions of Americans will not have a happy holiday season.

Save, save, save it's going to get worse. Keep in mind, if there is a credit bubble and it bursts, you do not have to be a part of it. Reduce your exposure where you can and have a secure savings emergency fund. Do not confuse investments with savings. Just when you need the money, so will everyone else and your investment will be down in value. Some say it is foolish to have a savings account because of the low interest rates. However, that is not the point. The point is to avoid other high-cost events when (and if) the credit bubble bursts. You will sleep better if you are prepared.