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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Nostradamus's picture

There may be no perceived alternative until an alternative becomes mandatory for commerce to occur. When fiat currency becomes worthless, something will emerge as a medium of exchange. Something tells me it won't be barrels of crude oil.

tsx500's picture

something tells ME it'll be something that has withstood and worked for thousands of years ..... something 'barbarous' if you will ......  ?

Global Hunter's picture

"What happens when there is no "percieved" alternative?"

I can think of alternatives: booze, cigarettes, boom-draw, bullets, gold, silver, cattle, goats, fire wood, sugar, salt off the top of my head

catacl1sm's picture

Don't forget chickens. They are multi-purpose after all.

akak's picture

I might accept the gold, silver, goats, or firewood, but I'll pass on the salt off the top of your head.

IrritableBowels's picture

Don't forget the Velcro gloves.

Ghordius's picture

"No alternative": disagree. Weimar age farmers bought additional tractors, lawyers and doctors bought farmland, everybody was in stocks, collections of rare stamps, objects of art and antiquities flourished, and, and, and. No state can seriously suppress "moneyness", even in prisons.

reminds me why so much propaganda is spent on painting such an hellish landscape on all things beginning with eur

even when totally out of whack and easily debunked

---------
Artitcle's
"geared with precisely this outcome in mind" eh? Two words: Nixon 1971. Extrapolation to present.

GCT's picture

Spot on Ghordius the smart people always moved into tangible assets.  The key was defending the assets like farm land or land with clean potable water.   

If the faith is lost in the dollar something else will replace it.  It will get ugly for a time but a person with hands on skills will likely do better then someone that cannot do anything.  Barter and blackmarket is already thriving.  The author does mke a good point if you produce these days, the MSM and others want to make you out to be a criminal because you are not doing enough to contribute to the government.  Give me a break.

TuPhat's picture

I keep a week's supply of "non perishable food" on hand for hurricanes (crackers, granola bars etc.).  I go through it once a year and replace most of it because it has become barely edible or not edible at all.  A few years ago I happened across an old box of 22 ammo I had bought as a teenager.  It was over 20 years old.  I took it to the range and fired it.  Only 2 misfires, you get that with a new box sometimes.  My conclusion: have enough food on hand for emergencies but do not consider it as a store of value.  Ammunition on the other hand is both an alternative store of value and can be very useful when things get bad.  (I have larger calibers than .22).  Of course gold and silver are always good.

Marco's picture

Stocking so much food which goes bad in a year is like using paper cartridges (which won't last 20 years either). Use sterilized food stored just like your powder, behind a barrier of metal.

akak's picture

The simple, and obvious, solution to the food (non-)problem is to rotate your food, eating the older as your replace it with newer.

My God, does this even really need to be pointed out?

Hacked Economy's picture

Only one week?!!?  Egad, man, that's child's play.  You should have a *bare* minimum of one month for yourself and your family under your roof.  Three months is better, because if the SHTF and you really do need to go for an entire month without being able to re-stock from the grocery store, you'd better believe your neighbors (who might also only have a week's worth of food in their pantry like you do) will be needing it, too.

Some food for you, and some for barter/trade/charity.  Let's say you have a natural disaster and your neighborhood is S.O.L. for two weeks.  If you have extra on hand, you can help out your elderly neighbor with some extra toilet paper, or the young family across the street with some food and water.  Be discreet about it, of course, so you don't become known as the General Store on your street, but it'll go a long way to build good relationships with your neighbors, and they'll remember it after things get back to normal.  For example, good neighbors watch each other's homes (for burglars, etc.) without even being asked.

TuPhat's picture

I may have around a year's supply but if total destruction happens to my house it would be wiped out.  The week's supply is just a small amount that I can grab and run with if I have to.  If we all knew what was going to happen for sure we could prepare exactly what would be needed.  Trying to be ready for almost anything isn't easy.  If I could keep on top of it and rotate it, then maybe I wouldn't lose any to aging.  In the real world I have to work and there are a thousand reasons why I don't get around to it in a timely fashion.  At least I have something ready.  BTW I have watched the show "Doomsday Preppers" and I'm not a nutcase like they portray those people.  Most people who really try to be prepared don't advertise it.  They especially would not let a TV show film their preps.  I bet ZHers don't advertise where they keep their gold to anyone except maybe when it's at the bottom of the lake.

akak's picture

 

BTW I have watched the show "Doomsday Preppers" and I'm not a nutcase like they portray those people.

I am convinced that the people highlighted on that program are portrayed as "nutcases" for a good reason --- to discredit and demonize ANYONE who would prepare for ANY calamity in ANY way as "wackos" and "fringe" and "terrorist sympathizers", etc.

The so-called National Geographic Channel has become NOTHING but a propaganda arm of the US government and powers-that-be, as most of their programming currently consists of pro-establishment, anti-liberty series which continually attack and demonize all those outside of the "mainstream", such as marijuana growers and users, "preppers", and so-called "hoarders", all of whom have television series expressly devoted to painting them as wackos, nutjobs and borderline criminals.

What the fuck happened to you, National Geographic?  Exactly when did you sell your souls to the Devil?

 

tsx500's picture

you are so RIGHT ON about the NatGeo channel... I finally came to the exact same revelation just a few months ago, about how they intentionally portray these 'Doomsday' preppers as wackos .... if you watch that show and look for it, it's so blatantly obvious.    

Maghreb's picture

They do quite few articles about Afghanistan and Iraq some are from returning Vets. Usually looking on the brightside of the war on terror.

Nostradalus's picture

F my "neighbors". They just live next door...

klockwerks's picture

Sorry, I consider it a "store of value" as I do have to eat and others do to. It goes without saying that ammo, water, silver etc are also very important for preparing for whatever does happen. A weeks worth assumes you will be able to buy food after that week but I would not want to count on that. I would prefer to cover all my bases and figure on worst case scenerio.

JLee2027'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?

 

Silver coins will quickly become the alternative. Thank you Bland-Allison Act. There are maybe 300-500 million Morgan Silver dollars estimated to have survived. Plus American Silver Eagles. I think we'll be fine...assuming you have a "stash".

Errol's picture

Pladizow, I quite agree.  Even if and when oil exporters stop accepting dollars for oil (truly THE END), the average Joe in the US will still be using dollars.  What else are they going to use?  If there is enough deflation, maybe clad coinage.

As it stands now, the world's central banks are trying to keep even with the deflation as defaults cause imaginary "wealth" to evaporate.  Japan has been doing this for a couple of decades now.  Not so much inflation, eh?

The central banks can do anything they want; they are merely managing the contraction that is inevitable and inexorable as conventional (inexpensive) oil production continues its unstoppable decline.  Humanity's ability to prevent the effects of real world events via abstract finance is much more limited than everyone wants to aknowledge.

fonzannoon's picture

"unless the Fed has acquired unlimited power"

When was the last time anyone kept them in check?

Landotfree's picture

About 83 years ago.   The restructuring of the global financial system 1929-1944, but it actually started before that.

God, the Universe, whatever... has it's own way of doing things, not much I can do about it.  Not the first cycle, we'll see if it's the last... I doubt it.

 

The Architect: The matrix is older than you know. I prefer counting from the emergence of one integral anomaly to the emergence of the next, in which case this is the sixth version.

*Again, the responses of the other Ones appear on the monitors: "Five versions? Three? I've been lied too. This is bullshit."*

Neo: There are only two possible explanations: either no one told me, or no one knows.

The Architect: Precisely. As you are undoubtedly gathering, the anomaly's systemic, creating fluctuations in even the most simplistic equations.

trav777's picture

my problem with that sequences was that Keanu lacked the acting chops to plausibly appear capable of that type of deductive analysis

Landotfree's picture

I agree.  :)

Otherwise the films are great for understanding systems.

slaughterer's picture

What if the thing that scares Paul Singer is the thing that is scaring nearly everybody?

fonzannoon's picture

OT but CNBS just had some guy on (last name Prezza?) who so nonchalantly discussed the stuff above and more I was completely shocked. If I find the vid I will add it. But for the first time in a while I was not marginally dumber for having that stupid channel on...

americanspirit's picture

What if the thing that scares Paul Singer isn't scaring anybody because they can't or won't admit that it is there? Kinda like hiding under your blankey so that the big bad wolf won't be able to find you and eat you. THAT's what scares me.

Seer's picture

One shouldn't run around being scared, as it's counterproductive.  Yes, many of those in denial are going to cause quite a disturbance; like a tree falling in the woods- standing the heck back is the best strategy.

I burned by allotment of energy "warning" people.  At some point one has to realize that there are many that cannot be reached, many who fight to their deaths in order to hurl themselves over the cliff (this suicidal societal programming is something to marvel at).

Global Hunter's picture

Seer, great post, relevant to me.

klockwerks's picture

I guess it sucks to be them then

Seer's picture

Losing his "job"...

That's why we need to stop all this fawning over talking-heads and "money managers" and get to doing actual work associated with living within the means of this planet (this is going to be the toughest thing humans have ever faced, when viewed at the scale we're at now [it's happened before, and while many have suffered, this time it'll be very visible to a HUGE number of humans]).

GCT's picture

Most people do not have a clue even after the MSM has now coined the phrase to make our messiah and chief look good. That requires critical thinking and research skills.  We cannot have that now can we! After all reality TV is on after nightly news.

trav777's picture

The Fed was put in place to make money for lenders, geez. It's really banal. Sorry to disappoint the trilateratti moonbats, but it's really simple and actually quite vulgar at its core. What worries me is the proliferation of idiocy and magical thinking; tho I see that ZHers have at last accepted the growth asymptote that I had to hammer into you cretins over the course of years.

The only route out of this maze, and by that I mean we escape destruction...are hail maries we're not even saying.

akak's picture

Oh fuck --- like Jason in the innumerable "Friday the Thirteen" flicks, he's back!

akak's picture

Suddenly, I am feeling like a bagholder again.

 

(A "bagholder" whose holdings are up over 70% in the last 30 months, that is.)

trav777's picture

50 by next week, "tops"

akak's picture

Your myth, not mine.

Mr Lennon Hendrix's picture

Silver has doubled since Traz joined ZH.  Still he hates on it.  Trav is the greatest "Bob" of all time.

Bay of Pigs's picture

Sweet, trav and  Robo are back. Now all we need is bob dabolina and genemarchbanks and we're back in business.

trav777's picture

<shrug> I guess the traffic was down...quality of commentary sure as hell has been.

chumbawamba's picture

Shut the fuck up, you stupid fag.

If you have hair on your balls you will come to chat and face off.

I am Chumbawamba.

trav777's picture

come where, mendicant?

what next, you gonna challenge me to a facebook status-off?

Mr Lennon Hendrix's picture

ZH has a chatroom now.  Come on in, we can find out how smart you really are.

chumbawamba's picture

He's a sad nigger.  He'll never show.

-Chumblez.

chumbawamba's picture

For the record: Trav came to chat, but he missed the part about needing to have hair on his balls, so he left after only a few moments.  He will be missed.

-Chumblez.

chumbawamba's picture

Maybe he can come back after puberty.