Paul Singer Warns It Is A "Very Dangerous Time" For Stocks, Prefers Gold

Tyler Durden's picture

Having previously warned that "the ultimate breakdown from this environment is likely to be surprising, sudden, intense, and large," Elliott Management's Paul Singer slammed the "amazing arrogance" of policy-makers who have "created a tremendous increase in hidden risk, risk that investors don't exactly know." As CNBC notes, Singer issued cautionary words for the path ahead, "it's a very dangerous time in the global economy and global financial markets," adding that gold was "under-represented" in investors' portfolios.

  • *ELLIOTT'S SINGER SAYS IN MIDDLE OF 40-YEAR LEVERAGE EXPERIMENT
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  • *ELLIOTT’S SINGER SAYS G-7 BONDS ARE NOT ‘SAFE HAVENS’
  • *ELLIOTT’S SINGER SAYS SELL LONG-TERM BONDS

Singer added:

Policies are exacerbating inequality, restlessness.

 

Economies fragile because of debt, low rates.

 

Sees risk both stocks, bonds can decline simultaneously.

 

 

 

Sees risk in inflation surprising everyone.

 

Gold underrepresented in portfolios.

As CNBC reports, Singer faulted the Federal Reserve and others for creating unusual dangers that are unique in the "5,000 years-ish" history of finance due to low and negative interest rates.

"What they have done is created a tremendous increase in hidden risk, risk that investors don't exactly know or have faced about their holdings," he said at the conference presented by CNBC and Institutional Investor. "I think it's a very dangerous time in the global economy and global financial markets."

 

Singer spoke as the Fed weighs whether to enact just its second rate increase in more than 10 years and its first since December, the hedge funder said policy makers acted with "amazing arrogance" when he and others were warning of the financial crisis that would explode in 2008.

In the current situation, he said, the best central bankers can do is say that things would have been even worse had they not acted after the crisis.

He issued cautionary words for the path ahead.

"With roughly $15 trillion on the major central bank balance sheets, with all of these rates at zero or even crazily below zero, you have a very delicate situation which cannot be solved by a sledgehammer," Singer added. "You need some finesse."

Watch the following brief clip at your own risk...

As we noted previously, Singer admits in Elliott's Q2 letter to investors, what the fund, up 6% YTD, is seeing, is "the most peculiar period we have faced in 39 years." The details are familiar to those who have read Singer's previous laments (most recently here) on central planning: too much central bank power, too much monetary debasement, inevitable inflation, and "when it happens it could be swift and impossible to tamp down."

Not surprisingly, Singer touches on a very popular topic in a world of nearly $14 trillion in negative yielding bonds, namely the scramble for safety, and surprised by the "continued stampede" to buy such bonds, he says that today's environment marks "the biggest bond bubble in world history", leading him to declare that "the global bond market is broken."

Singer is stumped by the "mentality that flies to an asset class regarded as a "safe haven" even when there are low or nonexistent returns attached to it and no guarantee that current conditions will persist", and warns buyer of negative yielding debt to "hold such instruments at your own risk; danger of serious injury or death to your capital!"

Actually, it is far less complicated than that: bonds are no longer being bought for current yield purposes (which does not exist in NIRP world) - an honor instead delegated to dividend yielding stocks, which can wipe out several years of dividends in an instant, as happened earlier today to CXW - but simply for capital appreciation, as demonstrated last week by the failed BOE QE buyback operation, where the central bank would literally pay anything to a willing seller, and yet was unable to find one in an offerless market. Of course, the culprit behind this irrational scramble is well-known: central banks.

Which leads us to Singer's next point, namely that "trading in this market is particularly difficult", something hedge funds which haven't generated any collective alpha in 5 years know too well.

"Everyone is in the dark," Elliott notes. "Experience doesn't count for much, and extreme confidence may be fatal."

Singer's gloomy conclusion is almost as apocalyptic as that of Carl Icahn from his latest Bloomberg TV interview: "the ultimate breakdown (or series of breakdowns) from this environment is likely to be surprising, sudden, intense, and large."

End of the investing world aside, the hedge funder says he is seeing opportunity in the distressed-energy sector despite the rebound of oil and gas prices from their lows. The fund also has been building up its gold position "in a conditional format," to ebb losses "should prices fall back from their recent strength."

Finally, Singer says that "it seems to us that investments and trading strategies which make money in a value-added way, in a different manner than the returns obtainable from the passive ownership of stocks and bonds, are especially good additions to institutional portfolios in the world going forward," the letter states.  As Kelly adds, that may be a more challenging argument for the average hedge fund competitor, which according to the HFR composite is up just 3 percent through July versus an S&P 500 that's up more than 6 percent. Furthermore, considering Steve Eisman's latest "big bet", this time against the hedge fund industry's well-known "2 and 20" compensation model, many active managers may not be in business long enough to see the "ultimate sudden, intense breakdown" predicted by Singer.

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wisehiney's picture

Now the scary crescendo.

Squeeeeeeze.

My juice cup awaits.

thesonandheir's picture

John Tuld: So, what you're telling me, is that the music is about to stop, and we're going to be left holding the biggest bag of odorous excrement ever assembled in the history of capitalism.

Peter Sullivan: Sir, I not sure that I would put it that way, but let me clarify using your analogy. What this model shows is the music, so to speak, just slowing. If the music were to stop, as you put it, then this model wouldn't even be close to that scenario. It would be considerably worse.

BaBaBouy's picture

Overnight Japan Bullchit Has GOLD Down Again ~~~

Way too many games being played.

 

junction's picture

This is the same Paul Singer who made over $500 million overcharging for the 2,000 year old gout dug colchicine.  He used falsified drug studies to get "exclusivity" (a monopoly) on the drug from the FDA. 

Singer has become a billionaire thanks to the corrupt system we have now, where the federal government is Wall Street insiders’ handmaiden.  Some $500 million of his wealth comes from the quick killing he made when the FDA granted him through his company URL Pharma "exclusivity" (a U.S. monopoly) in 2010 on the sale of the 2,000 year old gout medication colchicine.  Once Paul Singer’s generic drug company got a monopoly on the sale of colchicine in the United States, now branded Colcrys, the price skyrocketed from just over a nickel a pill to $5.00 a pill.   When in 2010 the price of colchicine skyrocketed, there were articles on this massive drug price hike everywhere, even CBS Evening News’ medical correspondent Jonathan LaPook mentioned the price hike in a story on drug costs.  But no reporter looked behind the curtain, to see black robed wizard Paul Singer gaming the system. 

The available facts show that corruption at the FDA allowed Singer's company to get a monopoly on the drug colchicine through the use of fraudulent drug trials.  Since 1997, Singer's Elliott Associates has been the majority owner of URL Pharma, a.k.a. Mutual Pharmaceutical Company, Inc., a Philadelphia based manufacturer of generic drugs.  The FDA granted URL Pharma its three year “exclusivity” on the sale of its branded version of colchicine, called Colcrys, based on what now turns out to be fraudulent drug trials.  This fraudulent drug study Pharma URL submitted to the FDA to get “exclusivity” on colchicine was a total fraud and is now the subject of a “qui tam” lawsuit. 

For the past two election cycles, 2012 and 2014, Elliot Associates has made $38,750 campaign contributions to Utah Senator Orrin Hatch.  Hatch was the co-sponsor of the 2006 Hatch-Waxman amendment to the FDA that created the “exclusivity” racket that enabled Singer’s generic drug firm to get a monopoly in America on this 2,000 old gout medication.  To date, Singer's URL Pharma is the only company to have been granted "exclusivity," as far as I know.  Singer made hundreds of millions of dollars as a result, both from raising the colchicine pill cost almost a hundredfold and then in 2012 from the sale of URL Phama to Takeda Pharmaceuticals for $800 million.  Takeda bought URL Pharma solely to gain control of its colchicine monopoly.

 

 

 

Duane Norman's picture

You're 100% right, smart guy but its tough to trust him these days. 

Bam_Man's picture

And just look at the carp lips on this guy.

Latitude25's picture

And don't  forget Argentina.

HowdyDoody's picture

<--- Paul Singerstein

<--- Paul (((Singer)))

 

missionshk's picture

in China, 24 Cholchicine pills cost 1 usd

missionshk's picture

ie. less than 1 percent of the usa price to the chinese public

Blah Blah Blah...'s picture

Im noticing some forms of physical gold are harder to buy online.

They are often out of stock and you have to wait and see if they get new stock or try something else.

I can still buy fairly easily but just maybe thats a sign things are starting to get a little bit tighter.

 

 

THE DORK OF CORK's picture

If I had access to free unlimited credit and valued money more then life itself I would be buying all remaining heavy oil power plants in the west.

 

When global shipping truly tanks heavy fuel oil will flow back into western countries energy balance sheets.

Those remaining old plants will.be worth billions 

I am Jobe's picture

Sure they just purchased the Dell Software Group http://www.bloomberg.com/news/articles/2016-06-20/dell-agrees-to-sell-so... . So expect layoffs

GunnerySgtHartman's picture

I've been buying physical gold from APMEX ... so far, no problems obtaining it. 

Keep stacking those PMs, folks.  :-)

Latitude25's picture

For the first time my LCS was completely sold out of AGEs last weekend.

abyssinian's picture

seems like most people and experts agree that the Feds are finanical criminals.... So why aren't they in jails or being hung by now? 

Blah Blah Blah...'s picture

Because the people are still eating cake

larz's picture

As long as your neighbors can dial a phone and order a Pizza delivered to their door while watching dancing with the stars there will be no action

Quinvarius's picture

As much as I like gold, I have no predictions about how paper gold it is likely to perform in a global asset selloff.  It got slammed last time.  The only thing different this time is that there is unlimited money baked into the system to cover any issues.  It will be deployed again.  But short term in a crisis, I can only guess.  Long term, like 10-20 years, easily 10x higher priced in currency.

Consuelo's picture

 

 

You (and the rest of us) will be lucky to be around in (5) years, let alone 10-20...

 

Then again, let me rethink the 'lucky' part...

WorkingPawn's picture

Look for deflation first when the bubble pops which will likely hit everything (stocks, bond, gold, etc...) hard initially - because they will be selling everything not nailed to the floor to cover their bad bets in an overleveraged market.

Once the bubble has popped (which could take 6 months or more) then we will see the inflation hit as people lose confidence in central banks and the currency.  Then gold will shine.

Remember hyperinflation does not suddeny appear out of nowhere.  Currencies can be inflated for years with no ill effects and in rare cases even be inflated without loss of confidence (as happened with British funding of the war  against Napoleon - one rare case where the bank printed money but did not lose trust). 

There is always a triggering event causing people to lose faith in the banks and currency first.  A run on the banks, a collapse of markets, a financial crisis.  Only after confidence is lost does true panic and hyperinflation set in.  The trigger here will likely be a simultaneous collapse of the bond and stock bubbles, which will likely deflate everything else with it.  When the central bank moves (inevitably) can no longer control the crisis, then panic will settle in.

tarabel's picture

 

 

I'm not in the market at all, but I have to wonder about the advice in re selling long-term bonds.

Over in Japan, the public is holding onto these instruments for dear life-- presumably because they will pay a substantial interest for 20-30 years in comparison to the current confiscatory substitutes on offer.

As interest rates go negative, would this not increase the premium commanded by an actual positive yielding financial instrument?

And, therefore, the advice to sell these little piggy banks is in the best interest of the governments that issue them and will presumably take them back up and replace them with I-Never-Owe-Yous. 

Good for their balance sheet and I'm sure they are rooting on Mr. Singer's suggestion in spades.

Iconoclast421's picture

It cannot be solved by a sledgehammer. But it can be solved by a central bank order book.

silentboom's picture

Damn the torpedos.

jubber's picture

and Gold shits out once again

milking institute's picture

Just to save you time,here a quick recap of Singers Speech: >WE'RE FUCKED,THE CB'S ARE CLUELESS,BUY GOLD!< For further updates click HERE to subscribe to my newsletter with a special exclusive Offer of only 199.00 a month for readers of this website! hurry,deal ends tomorrow!

JonNadler's picture

so he's short the   market?

NorthPole's picture

Bullshit - this is excellent times for stocks.

 

We have elections coming in 2 months baby - any crash now would hand the presidency over to the Donald on a silver plate. Ergo: the Fed will lower the rates to -100% if they have to.

dealmakerman's picture

Here is a great paper on how to protect yourself with the War on Cash and negative interest rates thats based on a variation of Gresham's Law. https://bunky1787.wordpress.com/2016/09/04/can-you-profit-by-saving-an-extreme-money-overture/

ms8173's picture

All these bilionaire say they prefer Gold..... then why the hell is it not going up??

JBPeebles's picture

The price of paper gold is being suppressed by the creation of infinite quantities of synthetic debt. Not hard to buy any asset (different from someone's IOU) when you have a printing machine out back.

The problem with the Comex is that the transactions can't be collateralized. I mean the other party says they have the gold. And they may have possession of a piece of paper that says it represents physical gold, but that piece of paper is worth only as much as the other party's ability to acquire physical and transfer it to you.

Conversion of the derivative claiming to represent physical can be done easily enough under normal market conditions.

Being that so few contracts on the futures market settle--convert to physical--the norm is to accept the spot price--in lieu of settlement.

It's a system easier than actually moving stuff around. It's also a market far easier to rig. The number of players is few and the accounting is opaque.

In a crisis, acquiring physical will be impossible. Counterparty risk will zoom as everyone who thought they owned gold will discover they own nothing physical at all, nor will it be possible for the party who owes them the gold to get it to them. Legal intervention--a futures contract is legally binding-- will force a settlement; the Comex players have deep pockets.

Interestingly, banks were recently told not to own many commodities. And a internet-based gold exchange by Michael Lewis' Flash Boys will offer real-time verification of transactions.