While investors witnessed the collapse in stock prices, the panic on Wall Street even triggered calls among experienced economists for emergency cuts in interest rates.

“That was amateur hour,” said Mark Spitznagel, founder and CIO of the private hedge fund Universa Investments, about the market drama. “I have never experienced anything like it in my career.”

Since then, markets around the world have largely recovered from the pain. The US S&P 500 has risen about 5 percent since its August 5 low. And while there are still concerns that the US economy could slow, recession fears have largely been dismissed.

But Spitznagel, who is known for preparing for and profiting from major stock market crashes, warns that the recent market volatility is just another sign that we are nearing the peak of the biggest stock market bubble in history – and most investors are unprepared for the pain that will come when it bursts. “These whiplashes are the market process. This is the market zigzagging for the sake of zigzagging,” he said. Assets“This is a clear warning signal.”

A new edition from 2007 – with a tighter schedule

Spitznagel said stocks experienced periods of heightened volatility before previous stock market crashes – including the 2007 global financial crisis and the 2000 dot-com bubble burst. Euphoric stock market rallies often end with increasingly extreme swings in investor sentiment. According to the hedge fund manager, we could see that again today, and at an accelerated pace.

“(It’s) a great comparison to 2007. But I think we’re going to see a compressed path,” he said. “I don’t think we’re going to have a year of it … because the connectivity is greater … the fragility is greater.”

Spitznagel has argued for years that the Federal Reserve helped create the largest credit bubble in human history by keeping interest rates near zero for over a decade after the global financial crisis, leaving the economy in a fragile state. Now he says that bubble will soon burst under the weight of the Fed’s rate hikes, and the impact will be even worse than previous market crashes because we live in an interconnected global economy where Fed policy moves markets worldwide.

“Drops are the price for gains on the stock market. You have to be able to pay that price. The problem is the big drops. Their price is too destructive,” he said. “That’s where it could go.”

Don’t risk everything by betting against a bubble

Here’s a quick moment of “clearing your conscience”: Spitznagel, who has been bullish in recent years because he believes Fed tightening takes time to impact the economy, pointed out that bubbles tend to reach euphoric heights before they burst, meaning his investors shouldn’t try to bet against the market or run for the hills.

“I think if someone shorts the market or invests too little relative to their temperament, they will be pushed in at a euphoric peak that is likely to come in the coming months,” he said.

The hedge fund manager always advises private investors to be patient, to invest in simple S&P 500 index funds and to have a safety margin so that you don’t have to sell at the worst possible moment when prices fall. According to Spitznagel, the biggest mistakes in investing are made when people sell near market lows or buy near market highs.

“I think people just need that moment of enlightenment. Close your eyes, think about a world where the market is down 50 to 75%, and then think about opening your portfolio. Are you going to do something crazy? And now think about the market being up 20%, and open your portfolio. Are you going to do something crazy?” he said. “That’s the question you should be asking.”

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