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00:00THE WAY I LOOK AT MARKETS AND INVESTMENT TODAY, THIS IS LET'S MAKE A DEAL. INVESTORS HAVE TO CHOOSE DOOR NUMBER ONE OR TWO NURNBERG TWO. STEPHANIE: WAS A DONKEY AND THE OTHER HAS AN RV. MARK: SOMETHING LIKE THAT. THESE ARE BUYING -- BINARY CHOICES WE HAVE TO MAKE. DOOR NUMBER ONE, YOU ARE BETTING ON CENTRAL PLANNERS AND BASICALLY ON GREENSPAN, BERNANKE, YOU GET WHAT I'M SAYING. DOOR NUMBER TWO IS THE OPPOSITE. AGAINST YOU ARE BIDDING ON NATURAL MARKETS, PRICE DISCOVERY, THAT FREE MARKETS ARE ADAPTIVE, COMPLEX, HOMEOSTATIC SYSTEMS. I THINK THE DISPARITY HAS NEVER BEEN GREATER. YOU KNOW IN POKER THAT YOU HAVE EVEN GOT THE BEST HAND OR THE WORST. ERRORS ARE MADE AND YOU WANT TO AVOID THE AREA. THIS IS WHERE WE ARE AS INVESTORS TODAY. THE BIG PROBLEM IS THERE IS COGNITIVE DISSONANCE HERE. IT TEACHES ALL OF US THAT DOOR NUMBER TWO IS THE RIGHT ONE TO CHOOSE. WE ARE ALL PILED INTO CHOOSING DOOR NUMBER ONE. FORT EVER REASON. IT CLEARLY FEELS THE BEST IN THE SHORT RUN. LET ME FORGET ABOUT TODAY UNTIL TOMORROW, THAT KIND OF THING. ULTIMATELY, THE DOOR WILL BE CRACKED OPEN. IT MAY BE SLAMMED OPEN. WE WILL SEE WHEN THAT HAPPENS. THE DREADED BLACK SWAN MONSTER. THIS IS WHAT USED TO HAPPEN WITH COGNITIVE DISSONANCE WE HAD. >> IT DOES NOT ALL HAVE TO BE PHILOSOPHICAL OR THEORETICAL. IF YOU HAD LISTENED AND DONE WHAT SOME PEOPLE, IT WAS SAID, AT THE DAWN OF QE, DO WHAT BANK IS TELLING YOU TO DO, BY RISK ASSETS, MAKE A LOT OF MONEY. YOU MAY LOVE MONEY EVEN WITH THE RECENT CORRECTION. YOU CAN NOW STILL HAVE MADE MONEY AND ASIDE IT IS TIME TO TAKE SOME RISK OFF THE TABLE, NO? MARK: THAT IS FAIR. YOU WANT TO GO AT THE FED WHEN IT IS WORKING. THE PROBLEM IS WHEN DO YOU KNOW WHEN IT IS NOT WORKING ANYMORE? IT IS NOT A LINEAR THING. WHAT WE ARE SEEING WITH NEGATIVE INTEREST RATES, AT SOME POINT, THIS STOPS WORKING. AT SOME POINT, THE MARKET CANNOT WORK ANYMORE. WHEN YOU ARE TRAINED TO BE A PILOT, YOU PULL BACK ON THE YOKE AND IT IS VERY PREDICTABLE. BUT AS YOU KEEP PULLING BACK, THE PLANE WILL POINT DOWN AND THE MORE YOU PULL BACK, THE MORE THE PLANE PULLS DOWN. THE ONLY WAY TO GET OUT OF THE STALL IS YOU PUT FORWARD AS YOU ARE GOING TOWARD THE GROUND AND THEN YOU PULL BACK. IT IS A NONLINEAR FEEDBACK THAT IT IS COUNTERINTUITIVE AND VERY DANGEROUS. THIS IS THE PROBLEM. YOU WILL SIMPLY FOLLOW THE FED. STEPHANIE: DRIVES HIS PLANE DIRECTLY INTO THE SIDE OF A CLIFF. HELP US OUT? >> IS IT POSSIBLE WHAT THE MARKETS ARE GOING THROUGH NOW, THEY ARE TRANSITIONING FROM DOOR NUMBER ONE UNTIL DOOR NUMBER TWO? MAYBE THEY ARE REALIZING THE CENTRAL BANKS ARE OUT OF COMMISSION, THE GAME IS OVER, AND THE MARKETS WILL HAVE TO CLEAR ON THEIR OWN MERITS, AND THERE WILL HAVE TO BE PRICE DISCOVERY, MARKET DISCOVERY. IS THAT HAPPENING NOW? IS THAT WHY WE ARE HAVING VOLATILITY CONCERNS AND THE PROBLEMS IN THE MARKET? MARK: I THINK THAT IS EXACTLY WHAT IS HAPPENING. WE NEED TO RESOLVE BETWEEN THE COGNITIVE DISSONANCE WE HAVE BETWEEN THE TWO DOORS. I THINK WHAT YOU'RE SAYING IS RIGHT AND PEOPLE NEED TO CHOOSE. LIQUIDITY IS A STREAM TODAY. IF EVERYONE WERE TO CHANGE DOORS, IT IS NOT SO EASY. IT CANNOT BE DONE IN A NON-MESSY WAY. STEPHANIE: WE GET SUCH DIFFERENT STORIES. SOME PEOPLE SAY, WE ARE TRADING MORE BOND THAN EVER. HOW MUCH DO YOU MANAGE? MARK: 57 IT IS WORTH THAN IT WAS. CORPORATE BOND MARKET PROBABLY HAD THE BIGGEST DELTA IN LIQUIDITY. WE ARE USED TO DEALING WITH HIGH-YIELD AND EMERGING MARKETS. IT IS A LITTLE WORSE THAN IT WAS, BUT WE ARE STILL TRANSACTING. A BOND A DAY. A LOT OF TRADING ACTIVITY IS HAPPENING WITH MARGINAL TRANSACTION CAUSES. THERE IS STILL DEMAND FOR HIGH-QUALITY BONDS. >> LIQUIDITY IS NOT A CONSTANT VARIABLE. IT IS HIGHLY CONDITIONAL. A CONSTANT FLOW, THAT IS WHEN YOU GET THE LIQUIDITY, SO DANGEROUS THAT THE LIQUIDITY YOU ARE LEANING ON -- THIS IS WHAT CAUSES VOLATILITY, WHEN YOU HAVE CONDITIONAL LIQUIDITY. >> WHAT YOU ARE TALKING ABOUT IS NOT A BLACK SWAN AT ALL. YOU SAY YOU SEE IT COMING AND YOU THINK YOU CAN QUANTIFY. WE KNOW SOME OF THE VALUE OF THE MARKETPLACE IS BECAUSE OF CHEAP MONEY. THERE IS A GENUINE UNDERLYING VALUE THAT ISRAEL. THE QUESTION IS, WHAT IS THE DIFFERENCE TWEEN THE TWO? >> IT IS IMPOSSIBLE TO KNOW THE DIFFERENCE. THAT IS PART OF WHAT IT DOES IT IT REMOVES AS MUCH INFORMATIONAL CONTENT OF THE PRICES. I TOTALLY AGREE WITH WHAT YOU'RE SAYING IT WE WILL HAVE NO RIGHT TO CALL THE CRASH A BLACK SWAN. WE WILL, IT WILL SURPRISE MOST PEOPLE, EVEN THOUGH WHEN WE LOOK BACK AT THIS, WE WILL SEE, THAT WAS THE MOST OBVIOUS BLACK SWAN EVENT EVER. >> IF PEOPLE HAVE BEEN LISTENING TO YOU, THEY WOULD HAVE BEEN ABLE TO BUILD THE PORTFOLIO YOU BUILD. LONG STOCKS AND PROTECT YOURSELF AND MAKE MONEY AT TIMES LIKE THIS. LET'S SAY YOU DID NOT AND YOU WERE LAWNS DOCS HEADING INTO THE CORRECTION AND YOU DO NOT HAVE

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Has the Market Crash Only Just Begun?

Universa Investments President and CIO Mark Spitznagel discusses the volatile markets. Prudential Fixed Income's Michael Collins also speaks on "Bloomberg ‹GO›." (Source: Bloomberg)