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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Roosting Chicken's picture

Ummmmm....yes, they are smarter.  That's why they are called the power elite.  And that's why there's not a damn thing you can do about any of this. 

exartizo's picture

Gee, as a "Money Manager" you're just NOW coming to that conclusion?

Ummmm... what planet have you been living on?

MagicMoney's picture

Inflation? Just a nother doom and gloomer. Inflation in the US can't happen. You know why? Because this is America people.

Aurora Ex Machina's picture

You're correct: chocolate bars and twinkies will just get smaller and smaller, for the same price.

Cathartes Aura's picture

and once familiar ingredients will morph into chemical imitations with better mouth feel.



Stuck on Zero's picture

The Author needs to go out and read Nassim Taleb's The Black Swan.



alfbell's picture

This is all about aliens people. We've been invaded and taken over. Do you think the international bankers and Bernanke, Obama, Summers, Rubin, Geithner, Blankfein, etc. and all the other technocrats in Europe are humans?! Duh! And Keynes, FDR, Mao, Stalin, Trotsky, etc? They were and are ALIENS!

I have special sunglasses that I can sell you to protect yourself. If you put them on you can tell who is an alien and who isn't. All you have to do is mail me a cashier's check for $1,000.00

dolph9's picture

You have to remember that back in the good old days (80s to 2008) the dollar did have some commodity backing.  Dollars were exchanged for oil, which meant that we were on an oil standard.

The oil standard failed in 2008 and was quickly met by debt monetization, which means we have broken even the link to oil now (in order to prevent natural deflation) and are now just using a completely symbolic currency.

A symbolic currency will never be subject to deflation, so those arguing for it will be disappointed.  A symbolic currency can and will be devalued against gold to continue to give "bread and circuses" to the people until it collapses altogether.

disabledvet's picture

It is factually untrue that the monetary authorities didn't see 2008 coming as a: they booted that STILL worthless Alan Greenspan out and b: replaced him with a guy WHO DID A 180 ON POLICY. This is not to say they saw the EXTENT of the catastrophe. THAT I would agree with. But let's be clear "all these guys love a catastrophe anyways." one look at Hank Paulson just SCREAMS "I want the end of the world NOW!" and the bottom line is "he was up to the task." As Winston Churchill famously said "I've always known since I was boy I would be there for Britain in her time of need." I know..I know..."friggin loony." But there he was..."when Britain stood alone." and so it was with Paulson and company..."re arranging the totality of Wall Street like they were deciding on which toppings to have for their pizza." the only one who got it was the Morgan Stanley guy who told Hank when said "you cannot remain independent" to "go Phuck yourself Hank." PRECIOUS. And to think they complain about our words. Hahahahahahaha! Bring it on Hamas! We're primed and ready!

Paracelsus's picture

I wonder what the point is in having a half-dozen Federal Reserve Banks across the country if the NY Fed is going to implode the system.I can see the day when one state (Utah? Texas?) will secede,and then game over.The "non-teamplayer" will have to be strangled at birth,drones,airstrikes,weather modification,etc.   It has to be a state that is energy independent  and well armed.To allow it to exist (thrive?) for six months would be encouragement to others,and that would not be acceptable to the 1%.....

Papasmurf's picture

ift. 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. O


What worries Singer the most is that once the last sheckle has been shaken from the pockets of the poor and middle class to pass it up to the top, it's game over.  Then he has to find something productive to do other than scamming money around the globe.

jomama's picture

for me, it's Angela Merkel naked.

dark pools of soros's picture

there is a lot of bullshit to this article too.  For the last 40 years CEO's, etc have made hay as the working class got shafted..  now that there is a hint of higher taxes, etc it is now an act of war vs capital.

CEO's didn't need to have this hyper profit business model via globalization.  It was a suck and grab while getting was good and now that it hit bottom they cry foul and take their ball and go home.



MyBrothersKeeper's picture

Who created the corportist economy that you speak of?  The govt that's who.  Corporations and the government have been complicit for some time, but no greater than following the 2008 crisis, in creating a monopolistic environment that deters vs promoting competition. Corporate CEO's are paid out of profits and their pay is determined by the boards.  Nobody should have a problem with that (morality aside) as long as the profits have been generated in a free market capitalistic manner.  Unfortunately that is not true, as government's venture into crony capitalism has eliminated competition with laws regarding lobbying, regulation, taxation etc.  As horrid as that is, it's not the corporations that have rung up outlandish debts in the name of "social progress", it's the govt's. At least the corp's are producing a prodcut that the public has determined they are willing to pay a particular price for. 16 Trillion in debt has been accumulated by outsized and inefficient govt.  You could argue the wars have been the biggest contributor, but even on that level there is enough data to suggest that the price tag could have been significantly lower (maybe even 50% lower). The very people blaming the rich have given the rich most of their unfair advantages. But now the policymaking has created such an advantage for banks and big business over small business and entrepeneurs that the real job creators and leaders have been slowly snuffed out.  That is why there is no growth.

Income inequality has little to do with true capitalism as competition and innovation creates wage acceleration.  The middle class in America has been more successful than any middle class in the history of the world.  Upward mobility in America has been unmatched.  The middle class is being eliminated by anti-competional policies...the same way that France, Greece and others have done. But it's a catchy argument that the current govt has been using to deflect the blame from themselves.

If I hear another argument for a "living wage" of $15 an hour I am going to throw up.  The only thing that will do is hurt competition and innovation (small busines/entrepenuers) more and more.  How many skilled employees (many of which are college educated) are making $12-$20 an hour? A helluva lot.  If you start paying anybody that can breathe $15...what is the advantage of being a skilled worker?  You have created false wage inflation vs market based wage acceleration. And the byproduct of that will be exacerbated inflation of almost all goods and services because the cost of producing those goods and services will rise exponentially. This will lead to eventually much higher unemployment as businesses will hire more highly educated people to fill positions that most 11 year olds can be taught to do and the unskilled will be more increasingly on the dole. Socialism by nature creates an economy based upon the underutilization of human capital.  There are onlt 5k public corp.'s and 22,000 private companies that start with letter "A".  People need to get over the notion that most of these small business people are rich.  Most people on govt payrolls with supervisory experience make more than many private business owners. Competition and free markets solve most of these issues because, by nature, it maximizes human capital.

alfbell's picture

A small farm (dwellings to rent on the property); basic farm equpment; a well; water filtration system (portable filters too); solar and wind; some pistols, a rifle and a shotgun, plenty of ammo and reloading equipment; fishing gear; some antibiotics and pain killers; some tools; some clothes and shoes; and a little gold and silver. I'll be ready.