Aaron Saldanha, Divya Choudhury

(Reuters] Universa Investments, the “Black Swan”, hedge fund is expecting lower returns in risk capital and equity markets over coming years because of frothy valuations.

Mark Spitznagel (chief investment officer, Universa), which has $11 billion of assets, and Nassim Nick Taleb as its distinguished scientist advisor, did not comment on the severity of the fall he anticipated.

However, the specialist in risk mitigation said that a shocking percentage of market growth since 2008 was “completely artificial.”

Markets may still be able to “rip up,” but not all of the gains, Spitznagel said at the Reuters Global Markets Forum.

The low subsequent returns following high-value periods are caused by markets that have large swings and don’t make much progress. This doesn’t just happen in markets that die,” he stated.

Brett Ewing (chief market strategist, First Franklin Financial Services) expects 2022 to not be a spectacular year for stocks in the near term.

Ewing expected the best investment opportunities to be in the S&P 400 and S&P 600 indexes.

“Forward price-earnings ratios on these indexes (S&P 400 and S&P 600) are vastly lower than that of the , which is very rare,” Ewing said.

Spitznagel is the author of “Safe Haven: Investment for Financial Storms” and believes that China’s constant intervention in its economic system would cause problems. However, this pales in comparison to the distortions created by the U.S. Federal Reserve.

Fed “truly drives the ship to the iceberg…(and) is today’s greatest driver of fragilities.”

Investors are wondering when and how the Fed will shrink its huge balance sheet after U.S. central banks’ decision to taper bond purchases, while revealing more aggressive projections for rate increases on Wednesday.

Spitznagel stated that he does not believe the Fed will ever tighten its belt again. “We have just gone too far in this forest… (it) is too much of an tinderbox right now.”

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