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Mark Spitznagel, co-founder of Universa Investments, believes the stock market is in a "Goldilocks phase" following the Federal Reserve's rate cuts and China's stimulus measures. After a crash last month, the market surged to new highs, but Spitznagel warns this euphoria won't last in an interview with Bloomberg.

He predicts a looming recession and believes the current rally is only temporary.

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Spitznagel, known for his focus on "tail-risk" hedging, which protects against extreme, unexpected market events, says the biggest market bubble in history is about to burst. He foresees stagflation in the future, where the Fed will have to act, but it won't be enough to save the economy.

Spitznagel has had success hedging through large downturns in the market, utilizing out-of-the-money put options as a way to “buy insurance” against market routs. Buying puts on the overall market through the SPDR S&P 500 ETF Trust (NYSE:SPY) or similar broad-exposure ETFs could be a way to protect against market volatility.

Spitznagel said that while the market might continue to soar in the short term, it will soon exit the Goldilocks zone, potentially by the end of the year. With the recent “uninversion” of the yield curve, Spitznagel feels the market is now in "black swan territory."

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What Is A Black Swan Event: A black swan event is an unpredictable event that leads to market volatility. The COVID-19 market crash is a recent example of a black swan event.

He also criticized traditional investment strategies like diversification, calling them a "big lie." He argues that modern portfolio theory has distracted investors, often making them poorer in the long run. Instead, he urges investors to focus on how their portfolios will perform in both good and bad markets.