Wednesday, September 25, 2013


A Hedge Fund Manager Who Doesn’t Mind a Losing Bet

  There is no shortage of market bears who take a grim view of the stock market. But Mr. Spitznagel has gained credibility in the investment world by predicting two market routs in the past decade, first in 2000 and then in 2008. Still, Mr. Spitznagel’s approach is unusual for a money manager. To invest with him, you have to believe in a philosophy that is grounded in the Austrian school of economics (which originated in the late 19th century in Vienna). The Austrian school does not like government to meddle with any part of the economy: when it does, adherents argue, market distortions abound, creating opportunities for investors who can see them. When those distortions are present, Austrian-school investors will position themselves to wait out any artificial effect on the market, ready to take advantage when prices readjust.


In the 2008 financial crisis, Universa funds rose by as much as 115 percent as the S.& P. 500 plummeted. But that crisis is not over, Mr. Spitznagel said, and when the Federal Reserve stops its quantitative easing program of buying Treasuries, the market will have to readjust.
He is not alone in this view. Stanley Druckenmiller, a former strategist forGeorge Soros and founder of Duquesne Capital Management, recently told Bloomberg TV that when the Fed begins to taper back its quantitative easingprogram, he expects the market will go down.
But Mr. Spitznagel goes further. “There needs to be a purge,” he said. “If there isn’t a purge, you don’t get the healthy growth. Capitalism is about loss and it’s about growth.”

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