Paul Singer Warns "All Hell Will Break Loose"

Tyler Durden's picture

It took Paul Singer's Elliott Management less than 24 hours to raise $5 billion earlier this month, however it is safe to say he won't be using any of that cash to buy stocks at current prices, or even BTFD. Instead, as he writes in his Q1 letter to investors, the legendary hedge fund manager thinks "that it is a good time to build a significant amount of dry powder,"

The reason for that is if, or rather when, Trump's pro-growth agenda fails to be implemented, "all hell will break loose" and that a recession looms as the artificial crutches propping up risk assets are pulled out:

Given groupthink and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose (don’t ask us what hell looks like...), a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. The only way to take advantage of those opportunities is to have ready access to capital.

Isolating the impact of the "Trump Put" as described recently by Deutsche Bank, Singer writes that "although the growth agenda of the Trump administration is slow to get off the ground, markets still anticipate that much of it will be enacted, sooner or later." And yet, according to most metrics, the Trump trade has already been priced out of most markets with the notable exception of equities, which as Bank of America pointed out in a note last week, are now the "last one standing".

Elliott's warning of a negative reaction in equity markets if Trump's economic policies are not delivered takes place as the US Congress debates how to fund proposed tax cuts for individuals and companies, and whether lawmakers are prepared to blow out the budget deficit as Trump's plan would. So far, all of Trump's various economic initiatives appear to have stalled permanently in Congress, with the market giving pricing in little possibility of their passage.

In this context, Singer warns that "there are actually forces in place that could point to a relatively near-term recession in the absence of solid new pro-growth policies." And with rates already at ultralow levels, the Federal Reserve won’t be able to provide a sufficient QE cushion, as it did during the great financial crisis. Which is why absent a procyclical push, the US economy may have no choice but to contract. Which is ironic because Singer, a prominent Republican donor, originally staunchly opposed Mr Trump as its candidate, before meeting the President at the White House in February where Trump claimed "he's given us his total support".

The manager of $32.6 billion in AUM once again points to his favorite nemesis, the Federal Reserve, and says that "we live in a time when extraordinary worldwide monetary policies have created bubble after bubble." Warning that QE has done nothing to address the fundamental issues of the economy, Singer said that rising sovereign and private debt loads will come back to haunt the markets and policy makers.

Expounding on a popular theme from his previous letters, Singer said that not only has the mess from the great financial crisis not been cleaned up, but all the wrong measures have been used to address the problem.

“Since the GFC, we have believed that the extreme monetary policy (ZIRP, NIRP, and QE) prevalent throughout the developed world was unsustainable and risky." He explains - as he has done every other quarter since 2008 - that the solution to a crisis resulting from financial engineering isn’t more financial engineering, but addressing the real issues that caused the problem to begin with. That has not beed one, and instead "the solution to overindebtedness should not have been the creation of more debt, and the problem of inadequate growth should not have been solved by money-printing and ZIRP/NIRP.

Singer also blames failed policies for the current breakdown between heightened geopolitical risk and record low volatility:

"On the face of it, year after year of the unusual and risky policy mix has not caused the collapse of any major currencies or significant inflation (other than in asset prices)," resulting in a world that has been put to sleep by pervasive complacency. "This seeming lack of empirical proof of the lurking danger has lulled most investors into thinking that the elevated prices of stocks and bonds, and the historical fall in price volatility in financial asset markets, is somehow a permanent condition."

To be sure, Singer has been one of the most outspoken market skeptics during the "central planning" phase of markets, issuing periodic warnings about China's debt-fueled boom and price bubbles in financial markets inflated by central banks' ZIRP/NIRP and bond buying policies of central banks. Maybe this time will be different.  Even so, Singer's stated skepticism hasn't prevented him from outperforming not only the S&P in recent peers, but the vast majority of his peers.

So what is Singer's advice for today's investors? In a time of historic market complacency, Singer believes that "the trick in such periods is to keep out of trouble.” Eventually the markets wake up, and when they do, that's when "all hell will break loose." When that moment comes, Singer is confident he will be ready.

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Deep In Vocal Euphoria's picture

doom coming...i dont know what it is...it's some sick mental illness i have..i can see the future...its crazy

El Oregonian's picture

It's like trying to hold water in a screen cup. It just won't work.

JRobby's picture

Like Singer is telling us something we don't already know?

"They" think they have a handle on this, on the algo's, on everything.

A Black Swan of a magnitude these moron's could never imagine lurks in plain sight.

Fucking Imbeciles

GUS100CORRINA's picture

All together please. Let's Sing: KATIE, BAR THE DOOR

1 .. and a 2 ... and a 3 ...

===============================

Katie, bar the door, the Devil's here again

He's looking for a savior, he's looking for a friend

The Devil drinks in places you and I have never been

So Katie, bar the door, and never let him in

Buck Johnson's picture

Exactly, exactly.  I truly think that many of these idiots don't want to see the black swan thta is in plain sight.  I think they believe they can control it and/or think it won't be allowed to happen, wrong.  I'll put it out there one part of this black swan that they aren't thinking about, their own algo's and frontrunning via highspeed trading.  What I see is that when a major event happens those systems will dump massively dropping the dow and other indexes faster than the market can keep up or the safety systems can cut in.  Most of these systems aren't for the possible variables that could happen from an event that may come their way. 

 

arby63's picture

We are exactly ONE generation away from employing young men and women who could give a fuck about the status quo. I know we all talk and discuss the gloom and doom but they are our kids. Got that folks?

JRobby's picture

They believe in the PPT. The PPT would have to have an insane level of funding to save what will eventually come and cover their own asses. 

Give Me Some Truth's picture

But there are no real investigative reporters left in the world or genuine "watchdog"-type organizations. No legit prosecutors, regulators or politicians either. So they can literally do whatever they want at no risk of being exposed. If they need to "print" and distrube $100 trillion dollars over night, they can and wil do it. Who is going to know? The people who do know aren't going to talk. The people who could ask questions and file big stories won't.

 

They do what they do because they fill they MUST do these things ... and they also know they CAN. They've become more confident the longer they've done it (with no negative consequences).

Giant Meteor's picture

This very thing my friend, over confidence, is also their Achilles' heel ...

Just because they have declared the end of history, does not make it so ..

I give you, the unsinkable Titanic, in that other age of irrational exhuberance and unrestrained hubris ..

In truth, there are many parallels 

 

Give Me Some Truth's picture

I agree. Arrogance will probably contribute greatly to their undoing. 

CJgipper's picture

If you pour in enough water (QE), the screen cup WILL remain full.  The guy holding it may drown, but the cup will be full.

Fake Trump's picture

Doom coming. I thought it was already here under our nose. 

Anteater's picture

So much public pension funds and managed 401k funds are heavily SHORTED, the portfolio managers are faced with the MOTHER OF ALL SHORT-SQUEEZES, and will scream The Sky Is Falling with monkeys shooting out their butts with their hair on fire. Then the police and fireman's pensions and Mom and Pop's retirement will get squeezed to P/E 31, where they will flatline, earning ZIRP, until Trump's New FAG budget cuts reinflate the PPT with more ammo. He's shooting blanks. $112B to KSA? Pathetic last gasp, arming the terrorists to propnup stawks, he's a real Reagan-man.

Croesus's picture

Everybody's saying "the world is ending" - it's not.

There's no collapse coming, not this year. It'll be next year.

Deep In Vocal Euphoria's picture

the transition period from information age (current) and the robot/AI age will be brutal..depopulation coming...millions if not billions will die

Croesus's picture

That's why Zuckershit is talking about a Universal Basic Income...

The rise of robotics & AI will send millions to the unemployment rolls.

Depopulation will be achieved through 'designer virii'.

Consuelo's picture

 

 

Can I have the 'orange room' then, like Edward G. Robinson in Soylent Green...?

 

I mean, we should at least be afforded that much dignity, right...?

arby63's picture

Either God is real or we're in for an interesting 50 years as the world disappears. 

Libtard's picture

Everyone is about to see how real He is!

JRobby's picture

You will be offered as much dignity as you are willing to die for.

"The System" threw the American People overboard 40 years ago. We are now in the final stages leading up to mass incarceration and genocide. But they don't have the guns yet. And they are not sure about the ammo.

Anteater's picture

If you buy some tinsmith tools you can pound your Precious into a shiny 24k coffin, 'cause The Last Sucker Buying PMs is you!

govtsucks's picture

Wouldn't people have said the same when they were living in an agrarian society and the Industrial Revolution came along? Nobody farms, and the world didn't end. People acquired new skills and new jobs were created. Why should robotics be any different? People will have to design, build, and service the robots. And if robots make us more productive, then most likely we'll have to work less. We used to work 10 hours a day, seven days a week. Now most of us work 40 hours. In the future, I expect that productivity will improve to the point where we work 10-20 hours.

As for Zuckerberg, he should stick to running Facebook and leave the social engineering to someone else. The guy has made me a shitload of money, but he's a west coast libtard.

Raging Debate's picture

govtsuck - That forecast of working less for the majority based on automation didnt work out then or now so doubt it now. Sure, people that had capital could apply it, leverage and then work less but that is a minority, not the majority. Does 40 hours provide the same quality of life as say, 1975 for the majority? Didnt think so. 

 It is a barbell economy. One can still find a way to get ahead but one will need to be working full time and researching which is work also to do so. I agree with others here. Collapse already happened for the majority anyways. So if the DOW crashes by 35% McDonalds is going to lay off all there staff? Pay less per hour when people walk off the job because of low pay or bennies? Ok, it may have a knock on effect, but more like a ripple in a pond. I am more concerned about geopolitics these days. The top of the barbell is freaked because growth for them is now stalling as was inevitable with just papering over real issues. It is always capital vs. labor issues in the end. 

Croesus's picture

There is a major flaw in your argument:

When the Industrial Revolution came along, the creations that came out of this time were not capable of THINKING FOR THEMSELVES, which AI will be.

Just like GMO, the developers of AI fully-appreciate the inherent dangers that COULD arise from it, but are doing it anyway, even though the results could be catastrophic.

Robotics in their proper usage, would be complimentary to mankind in the workforce, not used as a replacement (e.g. deep-sea rescue/salvage/exploration, not downsizing an old lady in a call center).

The people being replaced by robotics aren't "getting their hours reduced", they're getting them eliminated. Their "improved productivity" leads to foreclosure, repossession, and starvation.

Spitball's picture

Zuckerdick's proclamation = absurd.

The 79 million babyboomers retiring and dying over the next 2 decades will offset robotics and AI 

 

 

Joe Cool's picture

Everybody knows the good guys lost...

Everybody Knows.....

Bam_Man's picture

Upvote for the Leonard Cohen lyrics.

elephant's picture

Yes.  You're right.  It's always next year.

Croesus's picture

@ elephant:

I've been hearing that for years now...it's always coming next year, because 'X'.

X = (pick your favorite flavor of world changing catastrophe)

I'm at the point where I hope it does happen. Even if it means some good folks will get wiped out, it also means a lot of bad ones will too.

That's why I'm voting for Giant Meteor, 2020! He's a member here, and I know he'll crush the competition!

arby63's picture

Yes, you're correct in a way. Of course, know this: The collapse has occurred. Now we're just entering the dwindling-down phase. The percentage of Americans who can live independently is shrinking. That's all you need to know. Plan accordingly. 

It's not about a collapse as in the Towering Inferno. 

Anteater's picture

"Your problem, Billy, is you don't know you're a bad machine!"

The Trump Years will be summarized by all as Midnight Express - The Covenant.

Ink Pusher's picture

Dude, you are already 5 years late to the party. Get in line.

Jethro's picture

We've speculated for many months that a market crash would be ushered in with a Republican in the White House.

Anteater's picture

Strictly speaking, the end of the 19th C panic  was similar to the end of the 20thC, now we're in WW3 in the trenches, then Trump's defeat  in 2020 will usher in the Roaring 20s boom all over again, this time leading to The Greatest Depression, the Never-Ending One, the Robot Carnival.

Smoke 'em, if you got 'em!

LawsofPhysics's picture

Sadly, most of these folks won't even make good sharecroppers either...

itstippy's picture

They'd eat the 'taters when they're golf-ball sized, the onions as shallots, baby carrots, bean sprouts.  They'd post pictures of the delicacies on Facebook.  Come Fall, nothing left to harvest.  

UmbilicalMosqueSweeper's picture

Like the commie niggers in Zimbabwe, they'll even eat the seed corn for next year's crop.

Anteater's picture

100 years ago, 1/4 of Americans had no shoes, and didn't have two nickels to rub together, so there's that.

roadhazard's picture

You guys keep calling it every week and sooner or later someone will be right.

arby63's picture

Who are the "you guys" you furiously type about? 

peippe's picture

dow 22,500 7/4/2017

drop somewhere between 10/2-10/30

is this specific enough?  ^^^^^^^^

Panafrican Funktron Robot's picture

I think ZH has no bias one way or the other on it, this is just what the financial giants are saying.  Paul Singer, like many others (Goldman), are pimping the idea of shorting the market in order to slay yet more muppets by crushing said shorts.  This has been happening for a long time.

https://fred.stlouisfed.org/graph/fredgraph.png?g=dV3F

 

The only trendline that matters.

 

Sonny Brakes's picture

If Satan himself says that all hell will break loose then I'm inclined to believe him.

kalboking's picture

This guy put sanctions on a nation and cut the off from the world money system unless they paid him billions before anyone else. He's got juice . I wouldnt bet against this jooo fuck and his NY judge buddy both have faces of pure evil.

SillySalesmanQuestion's picture

He didn't get the moniker "The Vulture" by playing nice.

small axe's picture

right now Singer is just another arrogant master of the universe.

but wait until these bulletins hit the wire:

 

*UNRULY MOB WAITS OUTSIDE NYSE TO METE OUT "PEOPLE'S JUSTICE"

*BLANKFEIN, DIMON, OTHERS REPORTEDLY FLEE CITY

*CORZINE UNDER SIEGE IN MIDTOWN CONDO; "NO WAY OUT"

 

then Singer will be just another arrogant bastard running like hell

 

J Jason Djfmam's picture

That will be all heaven breaking loose.

arby63's picture

All too true of course. Unfortunately, people like Singer are so isolated they wouldn't even know how to cry out for help or mercy. They will just be crushed like a bug. One more insignificant creature extinquished.