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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Proofreder's picture

And so you sell some shares to cover an expense, only to discover
the cost of the item rose before you received the proceeds of the sale.
And the stock rose also. Now what to do???

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.

 

The Crack up Boom

Seer's picture

Care to wager about prices not dropping?

My favorite word: Depends.

Food, Shelter and Water.  Things associated with these fundamentals WILL become more costly (higher valuation).  But... there will be a LOT of shit that will adjust downward because it's not even close to having value relative to the TRUE fundamentals.

centerline's picture

For awhile, people who are missing the point and have yet to be squeezed hard enough (and quick enough) will grab at some of the cheap items.  System chugs along a little further as a result.

The whole thing is deflationary.  And most people really don't have any free cash.

So far, the Fed really hasn't taken any direct actions in terms of increasing money velocity.  It has mostly so far been a counterbalancing act against the collapsing shadow banking sector.  Something has to "give" for the cash to hit the street.  So far, I haven't seen anything of this nature.

PUD's picture

The destruction of society is inevitable in a debt=money system, a constant exponential "growth" system and a system completely dependent upon exponential consumption. The end. This is all you need to ever know. That and the fact that in a crumbling society gold will be worthless.

Gamma735's picture

Bullets and Firearms will be worth more than their wieght in Gold.  He who has the firepower gets the gold.

Dr. Sandi's picture

Until the rightful owner blows his head off. Home field advantage.

Proofreder's picture

Gold is never worthless. If it is to you, I'll be pleased to pay it's way to me. Thank you.

Renewable Life's picture

Well "worthless" might be a stretch!! But what I think you mean is NOT $2000 an oz!! But before we get to $150 an oz gold again, (post collapse) we will see gold explode in waves never seen before on this planet, and I mean like to between $5000-$12,000 an oz with $1000-$3000 swings along the way, as panic spreads and hyperinflation grabs us!! It won't be tulips this time, it will be PM's and Ag land and finally even real estate again before the west finally collapses under its own weight!!

But I agree with you, if your lucky enough to be buying PM's, I hope you'll be smart enough to cash out before the top and be buying Ag land, ammo, food, fuel, generators, solar panels, etc with the cash!!

SmoothCoolSmoke's picture

At 5-12K per oz, gold will become "illegal" to own.  That, you can count on.

Hacked Economy's picture

You're probably correct, although it might not be such a bad thing, depending upon the circumstances and your view of gold (asset, investment, heirloom, etc.).  If we do move to a gold-backed currency and the .gov wants what you have to replenish its coffers, it'll likely be after the mania phase (parabolic price increase) of gold, at which point you'd want to sell anyway if a profit is your goal.  If gold is officially re-valued at, say, $10K per ounce to properly support the new currency, then even if the public is required to "redeem" their physical holdings, then you've likely made a healthy profit in relation to what you originally paid for it.  At the end of the day, you can't eat your gold, remember?  Its eventual value is in its ability to PRESERVE your wealth, which in turn is necessary to buy your other physical necessities such as food, clothing, etc.

Silver will likely never be confiscated, so keep some of that in your portfolio too for the event of a temporary total collapse where coins might be used for a while.  Pre-1965 junk silver is the best because it's already a Constitutional U.S. currency.  :)

Seer's picture

You've got a more level-headed view I'm thinking...

Time moves on, which means nothing can stay static.  A "collapse" will occur in different places at different times, and at differing levels of impact.

Stores of "wealth" are just that, stores.  They do little in and of themselves, and do nothing if they just sit there and are never put to "work" (issues of inheritance aside).

All that we're starting to see is a process of the revaluation of goods and services.  For the astute it should be quite clear that one doesn't take the cue of the existing "trade," the one that built up this bubble and is predicated on infinite growth (unicorns and skittles promised to all).

"it will be PM's and Ag land and finally even real estate again before the west finally collapses under its own weight!!"

I don't think there's enough traction left for any of these to experience any (re)bubbling.  No argument that TPTB will try and pump things up, that's their job- they're cheerleaders who want us to work harder and harder, FOR Them.

Hacked Economy's picture

"A "collapse" will occur in different places at different times, and at differing levels of impact."

-------------------------------------------------
Very good.  I don't recall anyone else here touching on that likelihood, but it's true.  At least, on a macro/global scale.

-------------------------------------------------
"Stores of "wealth" are just that, stores.  They do little in and of themselves, and do nothing if they just sit there and are never put to "work" (issues of inheritance aside)."

-------------------------------------------------
Also very true.  See my earlier response to @Smoothcoolsmoke above.

mumcard's picture

So are you going to sell your gold for 20k fiat dollars when we're in total economic collaspe?  Then really people are holding on for the restabilization after the collapse at $150 an oz.  Store of wealth, not an investment.

trav777's picture

right, because in every crumbling society in the past 100 years, gold has been worthless.

What will be worthful, then?  Lemme guess, guns and ammo?  We will all shoot our way to happiness, right?

Seer's picture

Food, Shelter and Water.  More-so than at any time in the past oil-bubble years.

Speaking of oil-bubble, oil's value (I won't play with "cost" numbers, as it's about affordability) will increase.  Work is power, and power is work...  NOTE: PMs and ammo store a LOT better than oil :-()

GCT's picture

Welcome back Trav.  Seer is correct and I love the shiny metal.  But all bullshit aside if you have stacked gold and the real shit hit the fan, food and water will determine the trade.  Starving gold horders will gladly trade whatever is needed to feed them.

Especially it said resources are well defended.

Yes I do like my gold.

Hacked Economy's picture

I can't seem to locate it again (to provide a link for y'all), but I remember reading a story (complete with photos) of Hurricane Sandy survivors who were so ecstatic about receiving a roll of toilet paper (one roll each person) from emergency relief crews, that they were posing with them for pictures - with big grins on their faces.

Food, clean water, dry socks, and toilet paper.  PMs are further down the list, after these items.

LawsofPhysics's picture

real productive capacity.  Get your fucking tribe in order, bitchez.  glad you are back trav.

centerline's picture

Anyone buying gold thinking that what is coming might be short lived and they come out the other side to live like a rock star as a result (I'm rich, bitch!) might be disappointed.

It might however serve as passage from somewhere downright dangerous to somewhere a little more safe.  Maybe save a life.  Maybe make it to the other side and give someone younger that us (kids) a leg up in whatever new system arises from the ashes of this one.

Is a form insurance, IMO.  And all eggs in one basket is probably a really big mistake.

Nu Yawks hottest club is's picture

The thing that scares him most seems to be his billions leaving him for another 'investor'. So, the same as every other rich douche then.

Boo-hoo.

Seer's picture

You mustn't ridicule the rich!  People desire to be one, and if you don't support Them then you don't support Capitalism, and we all know what happens if you don't support Capitalism (even though people will both argue that it should be saved as well as it hasn't existed- hard to reconcile...).

centerline's picture

Got the keep the hamsters on the wheel now!

FranSix's picture

TIPS yields are bound to go negative across the entire yield curve first, and second, this would drive down short term treasury rates to nominal negative.

Higher interim rates at the long end of the curve will not necessarily affect gold prices, since gold prices can go into backwardation on negative nominal treasury bill rates, and gold prices aggressively advance into a lasting mania phase.

One thing that might occur is that the gold price is fixed in foreign exchange terms, possibly around $2000/oz.  This would mean a devaluation is set to occur some time later.  That means that you'll wake up one morning and the money you make or receive in pensions or yields will have half the purchasing power it did the night before.

If this is not done, then you can sort of expect that the onset full on monetary crisis of collapsing fiat currencies is an inevitability.

stewie's picture

I never understood how devaluation by fixing the price of gold works in a fiat system.  

1- How do you fix the price of Gold? The price is determine largely by supply/demand!

2- Since there's no convertiblity to gold, why would "fixing" it higher affect the purchasing power of currencies?

Anybody cares to enlighten?

Thanks

 

LawsofPhysics's picture

There already are paper markets and physical markets.  Such is the way with collapses and losses of CONfidence.

I reamain long black markets and anything of physical value that the paper-pushers cannot devalue.  America is heading where the Soviet Union went, just coming at it from a different direction, hedge accordingly.

venturen's picture

Wasn't Greenspan captain with first mate Geithner the crew of the Titanic? 

americanspirit's picture

Actually that was the Good Ship Lollypop

Seer's picture

Great!  You've now ruined it (song) for me!

davidsmith's picture

 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."

 

 

These comments are simply wrong in the context of the U.S. economy, which is a corporatist-ogopolistic economy.  All the issues which worry him as a bourgeois, are exactly the things which are being managed by the corporatist economy.

 

He has a knowledge gap. He simply hasn't studied quasi-fascist economies.  The U.S. is in a process of social deterioration.  Power is concentrating in response to it.  That's all.  Every tool in the toolkit will be used to ward off inflation or deflation, full employment or grave unemployment.  Every time a tent peg comes up, the corporatist economy will attempt to ward it off.

 

Why?  So as to keep the system going long enough to loot it COMPLETELY.  In the end, once you have looted everything you can loot, you toss the whole mess to the military.

 

But that's some years away in the U.S.  It happens when there's a 50% underemployment rate.  We are half that now.  If the writer wants to do something useful, he will provide us with an estimate as to when the U.S. will reach 50% underemployment.  That's when these quasi-fascist tactics will fail.

Seer's picture

We could call "IT" all sorts of things, quasi this, quasi that, but the ONE thing that is certain is that it's ALL based on growth.  Those at the "helm" may or may not understand the failings of the premise because, as usually the case for perpetuating things, you jump past it and get on with dealing/managing/controlling.

I wouldn't think it prudent to ask for timing because if you have to concentrate on that they you aren't busy preparing for the future... One would always question whomever the oracle was anyways (and, I suspect, that the oracle wouldn't be on "the team," in which case TPTB would do all sorts of things to discredit- paint the numbers all kinds of different ways, not just the REAL color, not even when it it obvious to all- denial is what they are expert in).

rustymason's picture

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

Too late, society has already been destroyed.

Madcow's picture

1. Deflationary Depression

2. Austerity

3. Tax Increases

4. ???

=

5. Growth !!

Proofreder's picture

4. War

There, fixed it for ya.

Super Broccoli's picture

I think his statement is true. Money printing will result - at some point depending on velocity and how soon that money hits the peasants hands somehow - in hyperinflation that will lead to revolutions.

The only question being : when is that going to happen ? Well i believe we still have a few months before it does so get back to work everyone this ain't the end yet ! (it still need to get a whole lot worst before it does)

trav777's picture

that's only if they print it.  They're not.  They're buying debt...kind of the same, but not really as the debt they buy has some repayment attached to it.  They are still trying to grow the credit system.

An inflationary outburst like in the 70s, where lending and prices went nuts, they believe they can squelch quickly with what would be a massive raise in rates.  Rates are like the control rods in Chernobyl.  Right now, they've pulled them all out, hoping that the lending machine will restart.

Mr Lennon Hendrix's picture

Trav you know nothing about monetary policy obviously.

trav777's picture

In fact, Mr. Hendrix, I know everything.

What I have said is true.  Ever wonder why you AREN'T seeing runaway hyperinflation?  Might wanna stfu and listen for a change.

Mr Lennon Hendrix's picture

Your comment was that the banks are not printing, but they are.  Not soley, but they are.  The $45B to buy MBS is being constructed out of thin air.  The UST purchases from OT2 are coming from selling the short term USTs, sure, but the $45B for MBS is being printed.

Your theory has to do with credit, but there always has to be a funding mechinism.  The only current one is coming from the Central Banks and they are not collecting enough revenue to make the purchases without creating fiat.

stewie's picture

Yes the Fed is expanding it's balance sheet, but the new money created barely offsets the deleveraging in the shadow banking system.  That's why there's no hyperinflation, from what I understand anyways.

Yen Cross's picture

Have you been to the" Grocery Store" lately?  Oh wait, Stewie is still on the teet....

Seer's picture

HYPERINFLATION.

If we really had it we'd see smoke all about us.

TPTB's strategy isn't one of stuffing the hammer down on things.

As noted (I think it was, but if not I state it anyway), inflation by Austrian economics measurement is about the increase in the amount of money circulating.

Price inflation is the result of high demand.  Usually it occurs with an expansionary environment.  This is not the case today (which is why people are so confused).  What's happening today is that physical inputs are becoming more costly because of scarcity; even though there's contraction happening!

You can't find this stuff in any text book on economics because the entire profession has never accounted for the scenario we're in: growth being impossible (using the existing, MASSIVE, highly efficient/productive infrastructure).

Say what you will, but the Fed is doing the ONLY thing they can do to ease us from the ledge.  If you view the funny numbers as just that -funny numbers- then you realize that that's how they're going to play it.  It's up to "us" to understand the real value in things: and, sadly, based on the fact that people can't grasp the exponential function I'm not thinking we'll find our way with anything remotely resembling clarity).

Future Jim's picture

Innovation has always grown faster than population.

Maybe growth today is being limited by taxes, regulation, cronyism, and missallocation of capital - all by government.

Maybe this is all intentional.

Hacked Economy's picture

Once again, class...

HYPERINFLATION is a result of a lack of confidence in a currency.  It has similar aspects to inflation to the observer, but at its core is a different animal altogether.  It can occur (spark) at any time, for a variety of reasons.  Just because you don't see the smoke yet, doesn't mean the heat isn't already present.  350 degrees, and the paper hasn't ignited yet, even though it's hot and in a vulnerable state.  But keep turning up the heat, and when you reach 451...

Mr Lennon Hendrix's picture

You are over simplifying it.  When you flood the world with dollars, when the supply increases, then the price of the dollar will fall.  Take away demand and the price falls further.  Even if everyone went on believing that the dollar was a functioning currency other assets priced in dollars would continue to rise.  Let's say people are as dumb as they appear and prices rose and rose and rose.  Sure people could be wiping their asses with their hands because they couldn't aford toilet paper, but you would have me believe that if TP cost $100 a role there would be no hyperinflation because people were still walking around not speaking of the price increase?

Sorry buddy, but hyperinflation doesn't have to be sudden.  In fact if you want to analyze the purchase value of the dollar, I would say considering it has lost more than 9/10s of its value we could already put that in the hyperinflation catagory.

Hacked Economy's picture

No, gotta disagree with you there.  Your example shows strong inflation, but if extended over a lengthy period of time, then it isn't a total public loss of confidence in the currency, and not hyperinflation.  One can lead into another, but they are different.  By your definition, the 98+% loss of purchasing power of the U.S. Dollar constitutes hyperinflation...except that we're talking about a timespan of a full century, so it is NOT hyperinflation.

BTW...I've got my TP needs covered for a long ways out.  :)

trav777's picture

And who OWNS THOSE MBSs?

What IS an MBS?  Hint doofus: it's a DEBT.

When the money payment from the MBS comes IN, the Fed EXTINGUISHES the monies from the purchase!

It's a big circlejerk.  They have to do this to offset credit collapse in the rest of the system.  There is NO source of credit demand...the freakin interest rates should TELL YOU THIS.

Rates are set by the MARKET.

Mr Lennon Hendrix's picture

I thought you were leaving to go make rubles?

And as for the market setting rates that would mean the market thinks there is no inflation, since rates are near zero, yet oil and precious metals have been pushing their highs over the last few years which would show that inflation is gaining traction.

Also Bernanke and the Fed have said they will "keep rates low" so you will have to argue with them that they do not set rates because they think they do.