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Elliott's Paul Singer Reveals The Thing That Scares Him Most

Tyler Durden's picture




 

When it comes to market experts with decades of insight, we will pick soon to be Second Admiral of his own sovereign navy (comprising of privateered Argentinian schooners, Belize catamarans, and soon, Greek Made in Germany submarines), Elliott's Paul Singer, over those of any fly by night TV talking head, or "information arbitrageur" whose only 'alpha' in the past decade was courtesy of expert networks. The same Paul Singer whose outlook on what the next crisis may look like we posted yesterday.  It is the same Paul Singer, who three weeks ago was a headline speaker at the Archstone Partnerships annual meeting, in which speech he laid out not only the biggest threat facing America - namely the arrogance of the United States "by not realizing that in today's world... you have to be attractive as a country [because] capital will go where it's welcome", but more importantly, the thing that keeps him up at night: "The thing that scares me most is significant inflation, which could destroy our society."

In other words, one of the best and brightest investors in the world, is most terrified by the one thing that every central-planning dispensing economist says will never happen: hyperinflation. Our money is certainly not on the economist theoreticians who could never foresee the second great depression their lunatic policies drove the entire developed world into.

Extracting the key parts from Singer's speech. Highlights ours

Let me make a few comments and observations on the current investment scene. I said before that every once in a while things really are “different this time,” and I thought of a metaphor earlier that might be useful to illustrate an important point. Let’s do a thought experiment: Let’s make believe we are in 1960 and sitting in Germany, and we are a group of German investors and businesspeople, about the same ages as the people here today. The group would be people who had seen the most astonishing changes in the underlying conditions of investing and growing capital—a complete evaporation of savings from 1914 to 1923; complete destruction of society; and a complete change in governance from 1943 until after the War. Keep that image in your mind when you come back to 2012 in New York City today and realize the basic terms and conditions of everybody in this room have not really changed over your entire career. There have been booms and little crashes, you’ve made money and lost money, some people were wiped out and others became wealthy, but the elections come every four years, power is transferred peacefully, and taxes go up or go down.

 

It concerns me that we might be entering a period—we have to think about this possibility—when the basic terms and conditions of owning capital, making a rate of return, and keeping the money you earned might be in the process of changing. Charles Krauthammer said some time ago that most of American political life is between the 40-yard lines and that this crowd, which has been elected for another four years, is kind of at the 30-yard line. I had thought about it at the 10-yard or 5-yard line, but Charles is more mature than I and I’ll accept what he said. But I’m very concerned about class warfare generated from the top, about the possibility of an extended period of lacking strong economic growth. I think economic growth could be easily achieved in the United States at greater levels, and I’m quite concerned that the current prospects, beyond the so-called “fiscal cliff” and a deal on taxes and spending cuts, will be an extended period of low growth and possibly a recession, the continued bashing of money and success and very large tax increases.

 

I want to call to mind a micro choice that I think is relevant. If you lived in the upper Midwest, you’d know the difference between Indiana and Illinois. You would know Indiana welcomes jobs and businesses, and finds ways to work with businesses; and Illinois is on a slide to Hades. Illinois—and I suppose Michigan, too—is doing everything possible to support unsupportable expenses, structures and make thing miserable for taxpayers.

 

By the same token, I think America—and this goes beyond President Obama’s administration—has been quite arrogant for a long time by not realizing that in today’s world, where many countries around the globe can turn out products and services more cheaply than America, and where America has lost so many industries and jobs to other countries, that you have to be attractive as a country. Capital will go where it’s welcome. It is subject to an understandable rule of law, regulation, fair and attractive taxation, and the quality of life. I’m afraid of that, because when you look at the sweep of the booms since the Internet boom and monetary policy, and the extremism that has become embedded in current monetary policy, the United States, Europe, the U.K. and Japan, you do see extreme monetary policy.

 

They say this is not massive money printing, but first they are wrong; and second, monetary authorities in the United States did not see the crash coming and the unsoundness of the financial system. In fact, right up until the crash they were saying that nothing like what happened could ever happen. So money printing and zero-percent interest rates, which have distorted the economic recovery and the landscape in the United States and Europe, have become a substitute for sound, pro-growth, fiscal regulatory tax policy. As a result, they say they are not concerned about inflation. This monetary policy, $3 trillion of bond buying in the United States, $3 trillion in Europe and another $2.5 trillion to $3 trillion in Japan, is unprecedented. It is not the case that they know the ultimate inflationary potential when this low-velocity money gets back into the system and acquires some velocity. If and when people lose confidence in paper money because of repeated bouts of quantitative easing and zero-percent interest rates—it could happen suddenly and in a ferocious manner in the commodity markets, in gold, possibly in real estate—interest rates could go up at the long end by hundreds of basis points in a very short time.

 

I’m quite concerned as a money manager that we have to manage money, not just for the boundaries of what’s in front of our faces—maybe we’ll have a little tax increase or not, the fiscal cliff, or the stock market might go up or down 10% or 15%—but for a basic shift. The thing that scares me most is significant inflation, which could destroy our society. Frankly, in my view the recent election has diminished the probability of a strong resurgence of growth, and I’m quite concerned. Others are concerned about the course of the next 12 to 24 months in terms of growth, taxation, regulation and social unrest, a resurgence or larger version of bashing anyone who has made money or makes money and not paying their fair share.

Or, perhaps, the developments over the past several months were geared with precisely this outcome in mind: because there is nothing quite like "social unrest" to resolve decades of untenable economic and monetary imbalance build up...

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Mon, 12/10/2012 - 15:11 | 3049251 Landotfree
Landotfree's picture

"They say this is not massive money printing, but first they are wrong; and second, monetary authorities in the United States did not see the crash coming and the unsoundness of the financial system."

He is confused, they(?) certainly know the crash is coming as the Fed was put in place for this exact purpose, to hit max potential.

Mon, 12/10/2012 - 15:14 | 3049265 Silver Bug
Silver Bug's picture

Sadly his greatest fears are due to come true if Central Banks continue on the money printing path they are on. Let's face the facts, they are going to continue until it blows up in their faces. It is QE to infinity. Hyperinflation is assured.

 

http://jamesturkblog.blogspot.ca/

Mon, 12/10/2012 - 15:24 | 3049273 Landotfree
Landotfree's picture

"It is QE to infinity."

No such thing unless the Fed has acquired unlimited power.  Man is able to get to 60-80 years or a generation or so, some empires even survived through multiple cycles before their final result.   

There is nothing the CBs of the world can do, other than to slightly effect and slightly delay the final solution to the equation.    I do get a kick out of people thinking there is some other conclusion to using the equation.  The system DEMANDS exponential growth, you either use it and supply the growth or you collapse.   The equation should not have been used if this final result was not desired, too late to cry about it now. 

Crying about what the CBs are doing is a waste of time, use the equation this will be the final result.  We all have choices but it seems Man continues to make the same choice. 

"Oracle: Seems like everytime we meet, I ain't got nothing but bad news. I'm sorry about that I surely am, but for what it's worth...you've made a believer out of me. Good luck, Kiddo."

Mon, 12/10/2012 - 15:28 | 3049307 Pladizow
Pladizow's picture

In modern history hyperinflation has only occured where there has been an alternative to the local currency.

This alternative has traditionally been the dollar.

What happens when there is no "percieved" alternative?

Mon, 12/10/2012 - 15:32 | 3049319 Landotfree
Landotfree's picture

What people call hyperinflation to me is usually credit worthiness.   The system is not hyperinflating, it's barely even inflating.  

The term "hyperinflation" to me is just a term the CBs want the sheeple to hear to convince them to spend and borrow, thereby extending the system to max potential.   

Mon, 12/10/2012 - 15:39 | 3049336 MillionDollarBonus_
MillionDollarBonus_'s picture

Reasons why trickle down economics doesn't work:

  1. Businessmen only care about profits, not helping their fellow man
  2. Businessmen hire people overseas at low wages instead of hiring more deserving workers who were born within the geographical borders within which the business was registered. If you want to hire low-wags monkeys then set up your business in their country. Americans deserve unconditionally high wages. We shouldn't have to compete with foreigners.
  3. Contrary to what free market economists believe, the rich don't just trickle their wealth down to the poor - they just keep it for themselves (surprise surprise) and refuse to share. 
  4. Lloyd Blankfein and Jamie Dimon are out to get us with their derivatives. Credit Default Swaps are the single most pressing issue in my personal life right now. Every day I worry about when I might encounter a Credit Default Swap and how this will affect me. There is nothing productive I can do in my personal life until government regulators create legislation banning this exchange of cash flows.
Mon, 12/10/2012 - 15:49 | 3049394 CommunityStandard
CommunityStandard's picture

You are (surprisingly) correct that trickle down economics doesn't work, but your reasons are wrong.

Mon, 12/10/2012 - 18:13 | 3049927 akak
akak's picture

Of COURSE "trickle-down economics" works!

The ruling elite piss on us ... and it trickles down.

Mon, 12/10/2012 - 18:31 | 3049985 willwork4food
willwork4food's picture

Fiat 'golden showers'?

I feel dirty...

Mon, 12/10/2012 - 21:17 | 3050469 AldousHuxley
AldousHuxley's picture

only thing that trickles down is shit from above.

 

 

Mon, 12/10/2012 - 22:07 | 3050584 markmotive
markmotive's picture

You want hopelessness-driven chaos?

You want to drive people into underground economies?

You want every man for himself?

THIS is what it looks like:

http://www.planbeconomics.com/2012/12/10/this-is-what-a-lawless-society-...

Mon, 12/10/2012 - 22:42 | 3050676 dougngen
dougngen's picture

markmotive,

excellent video! who does not belive gun ownership is paramount? show them this video and have them explain how it couldn't happen in Philly or Oakland.

police can't protect you just take the report after your dead!

Tue, 12/11/2012 - 01:04 | 3051094 tsx500
tsx500's picture

.....or Detroit or Shitcago or Miami  or  . . . . . . . . . .      

Mon, 12/10/2012 - 19:42 | 3050171 Ookspay
Ookspay's picture

What would you call it when the government takes less of my wages and I use that money to hire a landscaper or build a swimming pool or eat out more often? Trickle down does sound tacky, how about we call it capitalism?

Mon, 12/10/2012 - 20:14 | 3050288 ZeroSpread
ZeroSpread's picture

akak for You and all other Burns fans - Simpsons explaining the Fiscal Cliff.

 

-->    https://www.youtube.com/watch?v=c91usT4P1u0     <--

 

 

Mon, 12/10/2012 - 20:49 | 3050393 Captain Kurtz
Captain Kurtz's picture

Guys, he's clearly being sarcastic.  You just have to read more than 3 words before commenting.  Cmon the whole bit about Americans deserve higher wages and if you want a monkey go incorporate then hire them in that country, have to admit was pretty funny.

Mon, 12/10/2012 - 16:02 | 3049467 trav777
trav777's picture

THEY keep THEIR wealth for THEMselves...jfc, sounds downright diabolical!!!!!11 HOW DARE THEY KEEP THEIR WEALTH FOR THEMSELVES?!?!?!

Mon, 12/10/2012 - 16:08 | 3049496 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Those banks would have gone banrupt if they hadn't forced Congress and the WH to give them bailout after bailout.  They aren't wealthy, they are just plain fucking thieves.

Mon, 12/10/2012 - 16:38 | 3049619 trav777
trav777's picture

Surely; and without the Fed backstopping the MMs, the entire financial system would have collapsed.

There really weren't any good options.  As we speak, the Enterprises are the sole player in the 2ndary mortgage market; there is no private sector to speak of.  I can show you their white papers.  The Fed along with the USG, are the only source of credit growth.

I already told you people this stuff a year ago or so, before it was patently obvious.  Or maybe it was 3 years ago on TF...who can remember?  The Fed has no choice but to print the coupon.  There is no organic source of credit growth but the system MUST grow or else it will collapse quickly.

Mon, 12/10/2012 - 17:15 | 3049760 economics9698
economics9698's picture

 "The thing that scares me most is significant inflation, which could destroy our society."

No shit?  Really.

Mon, 12/10/2012 - 21:21 | 3050476 AldousHuxley
AldousHuxley's picture

inflation? give me a break. that is man made phenomenon.

 

what scares me is really the willfully ignorant sheep who enable such ordeal.

 

black friday sale on some junk you don't need, hollywood propaganda of fake reality on TV for christmas with gladiators with football, and it is all good.

Mon, 12/10/2012 - 23:21 | 3050817 Vendetta
Vendetta's picture

He's a rocket scientist obviously

Mon, 12/10/2012 - 18:05 | 3049915 flattrader
flattrader's picture

Geez, the stink around here was finally starting to fade...and now you're back.

Mon, 12/10/2012 - 21:26 | 3050492 nmewn
nmewn's picture

Its like deja pew all over again.

Mon, 12/10/2012 - 21:29 | 3050495 AldousHuxley
AldousHuxley's picture

you mean Deja Jew ?

 

 

Mon, 12/10/2012 - 21:35 | 3050508 nmewn
nmewn's picture

Trav's not a Jew.

Mon, 12/10/2012 - 18:55 | 3050037 walküre
walküre's picture

The collapse will still come and I welcome the day it happens. It turns pussies into men and princesses into women. A good collapse and cleanse is required once in a while to ensure our future isn't completely retarded and redundant. There are way too many spoiled idiots in this world today.

Mon, 12/10/2012 - 22:06 | 3050580 Uncle Sugar
Uncle Sugar's picture

How about the banks and insurance co's that needed the bailout were broken up and sold off to the banks and insurance co's that played it straight and didn't need a bailout?

Instead, we all got to chip in to make Jamie and Loydd whole for par.

Mon, 12/10/2012 - 16:44 | 3049637 kliguy38
kliguy38's picture

concise, accurate, and appropriately descriptive.... arrow up

Mon, 12/10/2012 - 22:44 | 3050681 dougngen
dougngen's picture

forced???? oh you mean bribed

Mon, 12/10/2012 - 16:17 | 3049524 Fishthatlived
Fishthatlived's picture

"Trickle down" is not and has never been an economic theory.

Mon, 12/10/2012 - 16:33 | 3049596 Spastica Rex
Spastica Rex's picture

Workers should compete globally to offer their labor at the lowest cost to capital. That is real competition. Race to the bottom, bitch.

Mon, 12/10/2012 - 18:31 | 3049983 Flakmeister
Flakmeister's picture

You know... "Right to Work"

Mon, 12/10/2012 - 21:25 | 3050488 AldousHuxley
AldousHuxley's picture

because you need the constitutional rights to be able to shovel shit for min wage.

 

and this "right" is reserved only for illegal aliens.

 

 

Mon, 12/10/2012 - 21:34 | 3050505 nmewn
nmewn's picture

Shovel shit...funny you should bring that up...O'Barry's dog walker makes 100k...google it ;-)

Mon, 12/10/2012 - 18:12 | 3049936 forwardho
forwardho's picture

Someone switched MDB's koolade with a placebo.

Mon, 12/10/2012 - 18:25 | 3049949 tenpanhandle
tenpanhandle's picture

 

 

 

1. Businessmen only care about profits, not helping their fellow man.

Everyone is a profit oriented business person when it come to their own efforts at wrangling an income (of any sort) be they an expert welfare recipient, or a  purveyor of their own labor or an entrepreneur.  Human nature dictates that everyone wants to profit from their action. I'm not being a cynic but a realist. Profit can range from money received in exchange for labor or product to how little work can be expended for any particular income.  In a soviet era gulag, I mean collective farm, where all potato diggers are paid the same, the digger that receives that wage for the least amount of digging is making the biggest profit.  When the number of people who measure their profits in "how little work is expended" reaches a majority it then becomes a race to the bottom. 

Mon, 12/10/2012 - 20:43 | 3050371 object_orient
object_orient's picture

Interesting interpretation of "race to the bottom"

Tue, 12/11/2012 - 04:46 | 3051312 sadmamapatriot
sadmamapatriot's picture

You're on a roll, MDB! I did not know you liked derivatives.

(Yall know he is always sarcastic, right?)

Mon, 12/10/2012 - 15:45 | 3049376 Nostradamus
Nostradamus's picture

Hyperinflation is credit worthiness?  You clearly either have no idea what you're talking about or failed to properly define your terms so that others can understand what you're saying.

Mon, 12/10/2012 - 15:50 | 3049392 Landotfree
Landotfree's picture

Clearly you do not understand the system.   I assure you the system is not hyperinflating, matter of fact it came very close to hyperdeflating in 2008-2010 even without a hyperinflating stage.   

It's over, it does not matter if you believe they will just start sending you checks, that period will be short lived I assure you.   

Mon, 12/10/2012 - 15:58 | 3049449 Nostradamus
Nostradamus's picture

No one here has suggested that the system is hyperinflating, only that the U.S. dollar is likely to be hyperinflated by the Federal Reserve, given its current and projected policy.  The system did come close to collapsing in 2008, but it didn't because the Federal Reserve printed money and gave it to the collapsing entities which were the pillars of the system.  The Federal Reserve's response to that crisis, which continues to this day, is a good reason to presume that they will ultimately hyperinflate the U.S. dollar.  Hyperinflation will collapse the system.

Mon, 12/10/2012 - 16:05 | 3049478 Landotfree
Landotfree's picture

"Hyperinflation will collapse the system."

So expanding and collapsing mean the same thing.   

The system will collapse just like all the prior ones, failure to expand at the rate needed.  In Roman Empire days, the silver mines were not able to produce at an exponential rate, Roman Empire was unable to expand further, population went from 1-2m in Rome to like less than 50k.  Nothing inflationary about it.

Your definition or words is the equilavent of saying black and white are the same.  Inflating means to expand or increase, collapse is usually decrease.   

The system will certainly collapse instantly if you remove the Fed, matter of fact, stop all credit creation ie dollar and your ATMs will stop working tomorrow.   


Mon, 12/10/2012 - 16:13 | 3049510 trav777
trav777's picture

you are mixing 2 sets of arguments; don't do that.

Hyperinflation as a purely monetary phenomenon is shorthand for worthlessness of the sovereign notes.  Typically, this comes from overproduction, but overproduction with respect to demand.  Value collapse can occur without printing as long as demand falls faster than production.

The Roman Empire deflated but its currency did not become more worthful.  This is the locus of the disagreement between you and those who take issue with your premises (which are mostly correct).

It really doesn't matter to anyone the form of the Destroyer, what matters is "what do I do about it"

Mon, 12/10/2012 - 16:19 | 3049535 Hulk
Hulk's picture

Welcome back man !!!

Mon, 12/10/2012 - 16:27 | 3049563 centerline
centerline's picture

Hypertiger.  So far, can't fault the logic... just get caught up in the house of mirrors constructed around the basic truths.  So many people gaming the systems with and without respect to the math.

Mon, 12/10/2012 - 18:33 | 3049991 Flakmeister
Flakmeister's picture

I see you got time off for "good behaviour" or some such...

Mon, 12/10/2012 - 20:53 | 3050406 object_orient
object_orient's picture

...and immediately sets to work on the low-hanging fruit

Mon, 12/10/2012 - 20:49 | 3050384 Errol
Errol's picture

The debasement of Roman coinage was simply a response to a deeper, unsolvable problem.  The Roman system was powered by slave labor, which was fueled by agricultural production.  As they ran out of "cheap" slaves and arable land (supply lines got longer and longer, potential slaves were more warlike), they were faced with contracting resources but a growing population.

The current industrial system is powered by fossil fuels.  As we run out of cheap (easily accessed) oil and coal, we too are faced with contracting resources and a growing population.  Just as the Romans, we can try this and that and the other thing, but reality just isn't impressed.  We can manage the contraction, that's about all we can do.  Believe it or not, the central banks are doing what they can with an impossible situation.

Prepare accordingly.

Mon, 12/10/2012 - 22:36 | 3050640 F. Bastiat
F. Bastiat's picture

Carbon is one of the most abundant (4th) elements in the galaxy; as are carbon-based substances.  In fact, if we look at where true modern technological innovation has occurred, most of it has been driven by our extraction of carbon fuels.  Particulary in the last decade, here in the states united, with horizontal drilling and fracking.

Due to these technological advances, solely driven by the private sector, America is once again poised to become the world's leading producer of carbon fuels.

The biggest threat to mankind today is not energy production, but that so many are so easily fooled by the primitive counter-liberty, counter-prosperity, counter-humanity superstitions still dervived from the spectre of marxism and preached incessantly by the feeble minds of the mass-TV-media and the public "education" system.

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