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mark spitznagel, one of the most pessimistic hedge fund managers on wall street and founder of universa, a "black swan fund" that specializes in profiting from tail risks, said that the federal reserve's first interest rate cut indicates that a u.s. economic recession is imminent, and that sharp declines in financial markets may occur again. forcing the federal reserve to restart qe to rescue the market.

the federal reserve started this round of easing cycle last week with a large interest rate cut of 50 basis points, which was quite rare in the past. fed officials said their rate cuts were aimed at recalibrating monetary policy and maintaining stability in the labor market.

with u.s. inflation steadily declining and the economy still relatively sound, many market participants are now viewing the beginning of the fed's easing cycle as a favorable signal for the so-called soft landing of the economy.

however, spitznagel disagrees.

in his view, this is just the beginning of the fed's aggressive interest rate cuts, because the debt-ridden u.s. economy, although still strong so far, will soon collapse under the weight of historically high interest rates.

spitznagel said in a recent interview, "as time goes by, we are in black swan territory."

u.s. recession is imminent

spitznagel pointed out that the u.s. treasury yield curve is a key bond market indicator of the coming economic recession, and the recent end of inversion in a closely watched part of the u.s. treasury yield curve indicates that a sharp economic downturn is imminent.

"the countdown really begins when the curve reverses and ends inversion, and that's where we are now," he said.

the financial associated press has introduced many times before that the two-year and 10-year u.s. treasury yield curves have turned positive in recent weeks after being inverted for about two years. short-term bond yields have continued to fall faster than long-term bond yields recently on expectations that the federal reserve will cut interest rates to support the weakening economy. in the past four recessions, namely 2020, 2007-2009, 2001 and 1990-1991, the yield curve also turned positive in the months before the economy began to shrink.

spitznagel noted that the next credit crisis could be similar in scale to the "great crash" of 1929 that triggered a global recession. "the fed is raising interest rates amid such a huge, unprecedented debt complex... that's why i say i'm looking for a big crash the likes of which we haven't seen since 1929."

spitznagel predicts that an economic recession may occur as soon as this year, forcing the federal reserve to further cut interest rates significantly from the current level of 4.75%-5%, and ultimately push the central bank to restart qe, or bond purchases.- this process usually occurs during times of market turmoil, with the goal of increasing monetary policy easing when interest rates are close to zero.

"i think they're going to save the market again," spitznagel said."i have a strong feeling that qe will come back and interest rates will go back to something like zero again."

universa is a hedge fund focused on defending against "black swan" events - unpredictable and powerful drivers of market volatility. it uses credit default swaps, stock options and other derivatives to profit from severe market disorders. the current assets under management are approximately us$16 billion.

spitznagel is a former trader and protégé of nassim nicholas taleb, author of the 2007 best-selling book "the black swan." he made billions of dollars from these black swan events during the 2008 stock market crash, the 2015 flash crash, and the covid-19 outbreak in early 2020.