Elliott Management: We Make This Recommendation To Our Friends: If You Own US Debt Sell It Now

Tyler Durden's picture


Every now and then we prefer to sit back and let some of the smartest money speak, especially when said smart money agrees with us. In this case, we hand the podium over to none other than Paul Singer's Elliott Management, which after starting with $1.3 million in 1977 was at $19.8 billion most recently. No expert networks, no high frequency trading, no "information arbitrage", no crony capitalism and pseudo monopolies of scale, and most certainly no bailouts: Singer did it all the old fashioned way: by picking undervalued assets and watching them appreciate. The timing is opportune because while Elliott has much to say about virtually everything in their latest 20 pages Q2 letter, it is the billionaire's sentiment vis-a-vis US Treasury debt that may be most critical, and may be the catalyst that resulted in today's abysmal 10 Year bond auction. To wit: "long-term government debt of the U.S., U.K., Europe and Japan probably will be the worst-performing asset class over the next ten to twenty years. We make this recommendation to our friends: if you own such debt, sell it now. You’ve had a great ride, don’t press your luck. From here it is basically all risk, with very little reward." There is little that can be misinterpreted in the bolded statement. And while many have taken the other side of the Fed over the past 3 years, few have dared to stand against Paul Singer because if there is one person whose opinion matters above most, certainly above that of the Chairsatan, it is his.

More deep thoughts from Elliott:

On QE and the nanny state:

  • Printing money and overstaffing government offices may look like growth for a period of time, but it is actually the road to poverty, corruption and, ultimately, political upheaval.

On regulation:

  • Opaque, overleveraged and vulnerable Financial Institutions which need to be propped up by the implicit or explicit guarantee of sovereigns does not make for a solid financial plumbing system for the global economy...this is a formula for power entrenchment, favoritism and shady deals behind closed doors.

On Dodd-Frank:

  • Not only will it fail to make the system safer, but we believe it will likely be an actual accelerant of the next financial crisis
  • Dodd-Frank was supposed to “fix” the American financial system and end “too big to fail.” Unfortunately, the law, born in a political steamroller, does the exact opposite: it will be the accelerant of the next crisis.
  • The 2008 crisis was episodic and took a while to get rolling. The next one could well be a black hole, and Dodd-Frank will bear responsibility for that.

On why Americans are angry:

  • The government, lacking deep understanding of these firms, wants to pretend that their gigantic efforts (most notably Dodd-Frank) actually fixed the situation. But we believe that citizens are angry at what their guts tell them (correctly, basically) about the special treatment and riskiness of Financial Institutions.

On public data reporting:

  • Decades ago, the balance sheets of the Financial Institutions contained most of the information you needed to know to understand their risks. Today the picture is profoundly different, predominantly due to the growth of leverage through derivatives....As a result, there is no major Financial Institution today whose financial statements provide a meaningful clue about the risks of the firm’s entire panoply of assets and liabilities including derivatives, nor how the firm’s performance, or even survival, will be affected by market movements in the future.

On leverage:

  • Including derivatives, nearly all the world’s largest Financial Institutions are levered 50-100 times (not 10-20 as reflected on their balance sheets), so the exact composition of their derivatives books is essential to an understanding of their risks and stability....no hedge fund is remotely as leveraged as the Financial Institutions, and no hedge fund actually had to be rescued during the crisis.

On European banks:

  • European institutions are in worse shape than before. Not only is their leverage (including derivatives) still at pre-crash levels, but they are choking on vast holdings of questionable sovereign debt which regulators more or less forced on them with lenient risk-weightings.
  • These banks are stuffed with paper that private investors would not buy, as part of the “three-card Monte” shuffle that characterizes the European banking/sovereign system today.

On "peak fragility" in the bond and stock market:

  • People are still buying bonds despite pitifully low yields because, well, they continue to go up in price, albeit in a self-reinforcing process goosed by central bank and momentum buying. When these forces exhaust themselves, the reversal could and should be swift and large.
  • A decade ago, stocks were overpriced, but institutions who owned them were generally happy... Stocks looked predictable and safe at the very moment that they were maximally unsafe. That is where long-term bonds of these four currency blocs (euro, U.S., U.K. and Japan) now stand.

On "safety":

  • “Safe haven” could be the two most expensive and painful words for investors in the financial lexicon this year.

On market sentiment:

  • Global financial markets currently feel like they are in a period of calm before a storm, possibly centered on the European situation. The problem is that no one can foresee when the storm will make landfall, or how severe it will be.

On why Europe is making one wrong decision after another:

  • Raising taxes to confiscatory levels (75% top rates are absurd and self-defeating), lowering already-too-low retirement ages, making it hard or impossible to fire people (which obviously discourages hiring them in the first place), increasing the scope of regulation and making it more complicated and subject to greater discretion by hostile, inadequately informed regulators, and making threatening noises at every turn about “the rich”, are the precise opposite of the actions and statements that policymakers should make to attract businesses and encourage expansions of existing businesses.
  • Nobody is forced to locate a business in Europe, and in fact capital flight today from several countries is already large and relentless.

On the future of Europe:

  • Since all of the euro bloc surprises in the last couple of years have been negative, and since the answer to every question about the ultimate cost of preserving the euro is “more than you thought yesterday,” the metaphor of a slow-motion train wreck seems quite appropriate.
  • The overall situation is not going sideways or up. It is drifting down.

On Socialists - in this case in France, but applicable everywhere:

  • The Socialists are unlikely to be terribly successful at preventing the destruction of jobs, but they may be all too effective, however unintentionally, at stifling job creation.

On tax policy:

  • Dramatic increases in taxes and regulation, together with a repeatedly punitive tone, are understandably extrapolated by capitalists and investors as indicators of hostility toward business and profits. The societal loss from the business decisions occasioned by such signals is self-reinforcing. Businesspeople sitting on their hands leads to lower growth and more angry rhetoric and hostile actions by government.

On the lack of job creation:

  • Since the top 20% of taxpayers (which includes a great number of people making less than billions and even millions) pay the overwhelming bulk of taxes, this promise to raise taxes has not exactly generated enthusiasm or jobs.

On US (small) business uncertainty:

  • Under ACA and the scheduled rise in overall federal income tax rates, one of the largest aggregate tax increases in American history is scheduled for five months from now. This is occurring at the same time that several strapped large states are also raising their top tax brackets.

On shifts in paradigms:

  • Businessmen are inherently optimistic, typically always looking for reasons to do business, expand and innovate.
  • Historical experience shows that when established perceptions are wrong, it can take a long time for contradictory data points to accumulate before such perceptions start to adjust and to cause alterations of behavior. However, at a certain moment, shifts in perceptions and trends could be abrupt, especially given modern tools of instant communication.
  • Today the hostility of the American and European governments to private enterprise, wealth and profits is used by those governments as  vote-buying tactics. The impact on growth and jobs is already visible, and capital flight (already seemingly underway in France) may accelerate unless the policies, and tone, change.

On the US welfare state:

  • If [Social Security, Medicare, Medicaid and government pensions] are not reformed, such entitlements simply cannot be paid as promised, regardless of the levels of future growth or taxes on “the rich” or anyone else.
  • The numbers are just too big, the result of a form of corruption: politicians made big promises in exchange for votes, not worrying about whether the promises could be fulfilled.

On the US "recovery"

  • Three and a half years after the bust, the massive spending, guarantees and money printing have left America with 8.2% unemployment (which vastly understates the actual level, since millions of people have simply left the workforce, while others have migrated from receiving unemployment benefits to getting long-term disability payments), sluggish growth, $5 trillion in additional federal debt, and $3 trillion of freshly-printed dollars on the Fed’s balance sheet. This is not a success. This is a national tragedy, in a society in which the world’s greatest engine of prosperity has  historically been fueled by innovation, optimism, entrepreneurship, flexibility and opportunity.

On Congress handing over the decisionmaking process to the Fed:

  • We believe that relying on monetary authorities to pick up the considerable slack in growth by printing money by the boatload is completely wrongheaded. It distorts both the price of money and the risks of holding long-term claims denominated in paper money, builds a future risk of large inflation, supports economic activity only in an oblique and unfair way, and creates something that is going to be very hard to unwind.

On the consequences of the printing money "alchemy":

  • Somehow many policymakers and citizens have come to believe that money printing is some kind of magical process, that good things can be produced literally out of thin air, and that if leaders don’t create growth from obviously-needed changes in wrongheaded policies, then poof!... printing more money will solve it. This is pathetic.
  • The range of inevitable costs to societies practicing such alchemy is somewhere between “a lot” and “utterly catastrophic.” The damage is already becoming evident, particularly in the distortion between the rise in financial asset prices and the sluggishness of the real economy. When consumer prices soar across the board or there are other painful consequences, we wonder what excuses the blameworthy policymakers will make to deny their responsibility.

Finally, on what nobody wants to discuss, but could very easily be the final outcome:

  • A loss of confidence in paper money could result in searing and startling inflation, evaporating life savings and turning every stolid worker into a frantic speculator.
  • If that were to occur, nobody could possibly say in hindsight that the conditions for such a sorry state of affairs were not in place.
  • The people who are telling us now that inflation is impossible because there is slack in the global economy, and that central banks can print trillions of dollars more without a significant risk of inflation, are the same folks who not only failed to predict the financial crisis, they did not even have a clue that a crisis of such kind was possible.

Indeed the "smartest money" is just that because it calls it how it is.

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Wed, 08/08/2012 - 15:33 | 2688674 hedgeless_horseman
hedgeless_horseman's picture



...but my broker said that sovereign bond funds are a safe investment.

Wed, 08/08/2012 - 15:33 | 2688682 Silver Bug
Silver Bug's picture

Get out while the getting out is good!



Wed, 08/08/2012 - 15:44 | 2688713 Dr. Richard Head
Dr. Richard Head's picture

But, but, but......Bernanke built me this sweet wingsuit and I am just having a flight to safety - http://www.youtube.com/watch?v=Bjr21IAmgU8

Wed, 08/08/2012 - 16:13 | 2688791 Precious
Precious's picture

How much loyalty does that US Debt have to the American citizen?  Zip.  Nada.  Who knows where the hell it goes.  Maybe t-shirt foodstamps for Jewish billionaires?  And people accuse banks of money laundering?

How much loyalty does the Japanese Debt have to the Japanese citizen?  100 percent.  It all goes back in somehow, or it doesn't go out in the first place --- and surely not for t-shirts.

Wed, 08/08/2012 - 16:24 | 2688851 engineertheeconomy
engineertheeconomy's picture

Strange question:

With 900 Quadrillion in derivitives and who knows how many Trillions in this alleged national debt, what would happen to the price of Gold if we passed a "Resumption of Specia Act" (from 1875), and paid off everyone in Metal instead of paper?

What would Gold be worth then, $100,000/oz?

Wed, 08/08/2012 - 20:22 | 2689462 Renewable Life
Renewable Life's picture

They better hope the curiosity rover finds gold on Mars!!

Wed, 08/08/2012 - 16:07 | 2688802 Panafrican Funk...
Panafrican Funktron Robot's picture

The flaw in Singer's argument is the false dichotomy between private industry and government.  That he repeatedly suggests this illusion tells me he's either stupid or corrupt.  I'm willing to grant him the latter.  Consider:

"We Make This Recommendation To Our Friends: If You Own US Debt Sell It Now"

Talking your book doesn't make you a hero.

Wed, 08/08/2012 - 18:59 | 2689316 TradingChief
TradingChief's picture

Lets see..... a guy that lives off of distressed debt, is calling for the end of the world as we know it. A guy that is a staunch Republican supporter believes "socialists are not the answer, and that Ben is not someone that should continue to hold his job? Hmmm are we sure Romney did not write this?

Wed, 08/08/2012 - 19:35 | 2689389 Alea Iactaest
Alea Iactaest's picture

The flaw is that this is all by design, so the so-called problems are only a matter of perspective. If one's goal is to collapse the equity market, create growing distrust of government and ruin the currency then things really couldn't be better. What, that's not what you want? Too bad.

Wed, 08/08/2012 - 22:10 | 2689747 old naughty
old naughty's picture

but, didn't Gross sell all his US debts back in Q1 2011? 5Q late?

Or, is there more here?

Thu, 08/09/2012 - 00:15 | 2690062 LowProfile
LowProfile's picture


Talking your book doesn't make you a hero.

It does when you're right, and it's contrary to what TPTB want you to believe.

Wed, 08/08/2012 - 15:33 | 2688679 slaughterer
slaughterer's picture

Paul Singer stands at the pinnacle and looks down upon all of us.  

Wed, 08/08/2012 - 15:41 | 2688694 LawsofPhysics
LawsofPhysics's picture

Lots of people have correctly identified the problems, how about some solutions for a change?  Maybe the "Wealth" these fuckers stole isn't that real either?  Fuck all the paper-pushers who refuse to have an adult conversation. This report from captain obvious sounds like someone who successfully front ran all the Fed and government stupidity, has made their millions (while creating nothing of real value) and is simply cashing out.  Fine, good for you, might not want to gloat so much less you find the guillotine.

Wed, 08/08/2012 - 15:48 | 2688735 Winston Churchill
Winston Churchill's picture

No solutions.

We have entered the event horizon.

Wed, 08/08/2012 - 16:02 | 2688778 Xibalba
Xibalba's picture

Here's one, but you might not like it.  Ammo, Butter, and Gold.....

Wed, 08/08/2012 - 16:08 | 2688805 Winston Churchill
Winston Churchill's picture

See below.

Have all those plus.


Wed, 08/08/2012 - 19:36 | 2689398 Alea Iactaest
Alea Iactaest's picture

@ Lawsofphysics. Of course the "wealth" isn't real. No way when the plan is to print money and buy debt. If the debts don't get paid just print more money. If they do then you get to pass Go and collect $200. And no, you can't play this game.

Wed, 08/08/2012 - 16:09 | 2688809 gmrpeabody
gmrpeabody's picture

Fine, good for you, might not want to gloat so much less you find the guillotine.

Don't begrudge the man. He neither lied, nor stole, nor asked you or I to subsidize any losses. Unless you are totally against trading for a living, you should allow success to those who use their brains as well as their brawn.

Wed, 08/08/2012 - 16:16 | 2688829 LawsofPhysics
LawsofPhysics's picture

Bullshit, the fact that he asserts a distinction between private industry and government should tell you he is corrupt.  Let me guess, you really think that there have been "free markets".  Had that been the fucking case moron, bad business models would have been allowed to fail in 1982, 2001 and 2008.  let me guess, you probably supported TARP and TALF as well. 

Wed, 08/08/2012 - 19:25 | 2689373 Likstane
Likstane's picture

Because "he asserts there is a difference between private industry and government, this should tell you he is corrupt"....but by this assertion he would possibly be one of the few that does incorporate a moral standard.   How is it you know this persons ethical business practice?   It seems as you are using your own immoral assertions to judge this persons behavior.  

Wed, 08/08/2012 - 19:44 | 2689379 gmrpeabody
gmrpeabody's picture

"Let me guess, you really think that there have been "free markets"."

" let me guess, you probably supported TARP and TALF as well. "

Wrong on all counts...,

Truly, try to think before you wildly flay at other folks about whom you know little to nothing at all.

Moron..., indeed!

Wed, 08/08/2012 - 17:45 | 2689138 Stock Tips Inve...
Stock Tips Investment's picture

Our responsibility is to protect the possible effects of this potential crisis. The government will not do. The Fed either. The companies ... less. Social security ... impossible. So we must be alert to the signs that give us the market. Do not forget that in times of crisis when great opportunities arise. Today there are tool that anyone can benefit from this debacle. You just have to be careful, know where to act, and ... acting.

Wed, 08/08/2012 - 19:00 | 2689312 olduser
olduser's picture

No solutions.

Indeed. People are unwilling to pay the price of any solution, but they ultimately will by default.

Wed, 08/08/2012 - 19:37 | 2689400 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

No solutions.

It's not a matter of price or willingness to pay.  Population exceeds carrying capacity, that cannot be sustained.  People will have to die.  The particulars of how, when, and who are uncertain, but war and famine seem most likely.

Wed, 08/08/2012 - 15:54 | 2688755 lolmao500
lolmao500's picture

Why no solutions? Because there isn't any unless you plan to leave the country. Once it all goes down, if you're still in the US, investments won't matter. All hell will break loose.

Wed, 08/08/2012 - 16:00 | 2688772 Lost Wages
Lost Wages's picture

What good is leaving the country going to do? You need to leave the planet.

Wed, 08/08/2012 - 16:26 | 2688858 NotAMathWhiz
NotAMathWhiz's picture

Psst.... pretty sure some people 'round here have already stepped off...

Wed, 08/08/2012 - 16:36 | 2688891 honestann
honestann's picture

And we're working on that, but as good as the predators are at kicking the can down the road, we're worried we won't be off this rock in time.  Hence the need for a way to vanish into the extreme boonies and finish our work "out of sight, out of mind".  Too bad most people spend their lives in denial, or increasingly (especially here at ZH), frozen in the headlights.

Wed, 08/08/2012 - 16:03 | 2688782 Winston Churchill
Winston Churchill's picture

All right I'll bite.

The only solution I have is ABCD.

Anything Bernanke Cannot Destroy.

50% cash under a mattress.

50% gold, lost in a gardening accident.

If we get through this.

I have property overseas however my major income is here.,so

I'll stay as long as possible.Probably get caught here.

I have a plan for that as well.

Wed, 08/08/2012 - 16:21 | 2688841 GERxit
GERxit's picture

Define cash!

The only cash you have (which the Bernank can't destroy) is the stuff you lost at your garden accident. The rest is just toilet paper if Bernanke goes for the heli...

Wed, 08/08/2012 - 16:40 | 2688921 Winston Churchill
Winston Churchill's picture

There will be greater fools who will take that cash(basket of currencies by the way)for

hard assets along the road.

Stay flexible as it could play out several ways.

Wed, 08/08/2012 - 17:27 | 2689095 Mark Carney
Mark Carney's picture

I have been busy stuffing my garage full of two-ply.....the real stuff. just waiting for the wife to see it and be like WTF?

Wed, 08/08/2012 - 19:18 | 2689364 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

SHTF was not meant to be taken literally.

Wed, 08/08/2012 - 16:37 | 2688868 HardAssets
HardAssets's picture

"Maybe the "Wealth" these fuckers stole isn't that real either?"


Yep - - all the 'debt' and 'wealth' they talk about is pure bullshit. Nothing but a fraud. 

People will go hungry and put up with poverty for their children (austerity) in the attempt to pay back the criminal banksters, not knowing that what they 'loaned' was all made up out of thin air. An illlusion.

Ignorance has a high price. 

Time for a total reset. Throw the banksters in prison. Repudiate all the debts. Toss out fractional reserve banking fraud. All the paper pushing has nothing to do with the real physical world, and their claims on real wealth mean nothing. Start over with a sound system based on commodiity backed competitive money.

And then get rid of the mandatory public 'schools' and teach young Americans their true history (good & bad) and the foundations of Liberty. So, this won't happen again. 

Wed, 08/08/2012 - 16:38 | 2688907 Sweet Chicken
Sweet Chicken's picture


Wed, 08/08/2012 - 16:44 | 2688932 Arnold Ziffel
Arnold Ziffel's picture

Will the last one out please turn off the light & close the door.

Wed, 08/08/2012 - 17:57 | 2689165 CrashisOptimistic
CrashisOptimistic's picture


Tyler started out applauding the guy like a fanboy for growing from 1 B to 19 B, but we don't know how much of that was selling ice cream to eskimos and attracting new money, and the rest, how it compared to the S&P.

OTOH, overall, if people think there's a Bernanke floor under equities, which is not clear, they should damn sure KNOW there is a Bernanke floor under bonds, because that's his fucking job.  If an attempt were made to wholesale dump bonds, he'd buy with both hands, scare the shit out of the sellers/shorters and presto, mid day reversal.

This is all largely bullshit.  Buy farmland.  Nothing else has value that is not solely in your imagination.


Wed, 08/08/2012 - 19:13 | 2689352 Bwahaha WAGFDSMB
Bwahaha WAGFDSMB's picture

That was 1M to 19B, but your point about it being unclear how much of that is other people's money still stands.

The notion that land can be owned is bullshit too, especially in times of revolution.  Land has the advantage of being productive.  Coins have the advantage of being portable.  Land can be occupied.  Coins can be posessed.  Ownership is a social construce.

Wed, 08/08/2012 - 15:35 | 2688695 govttrader
govttrader's picture

I know i've said it before...but:

Of the last 13 new 30yr bond auctions (not re-openings, but new issues...going back to May 2009), buying 30yr bonds in the auction and holding the paper for 24 hours has been profitable 13 out of 13 times.   This stat is making its way around the street, so expect an additional amount of players in tomorrows auction. Should be bullish.  Also, shorts in S&P futures have been building as many Elliot Wave technicians have been talking about an  upcoming cliff in the S&P, as they look for a 100-300 point drop in the S&P 500.  This should be bullish for 30yr treasuries (for 24hrs post auction)  as stocks seem to be full of Central Bank hopium lately. 

On the long long term, I agree with Singer, but as a day trader, its irrelevant.


Wed, 08/08/2012 - 15:47 | 2688731 Precious
Precious's picture

There will be no cliff as long as Bernanke has his finger on the "no-cliff" button.

Wed, 08/08/2012 - 15:36 | 2688700 bigdumbnugly
bigdumbnugly's picture

unfortunately i didn't see Singer's name on the ballot.

and now i know why.

Wed, 08/08/2012 - 16:38 | 2688910 SAT 800
SAT 800's picture

Probably because he's not an unemployable choclate colored moron; he has better things to do.

Wed, 08/08/2012 - 17:58 | 2689167 YC2
YC2's picture

800 on the 1600 scale or the 2400?

Wed, 08/08/2012 - 18:05 | 2689180 smiler03
smiler03's picture

Or an undiplomatic mormon warmonger.

Wed, 08/08/2012 - 15:37 | 2688701 PiratePawpaw
PiratePawpaw's picture

Elliot just now decided that govt debt is a bad risk?


Wed, 08/08/2012 - 15:47 | 2688732 Dr. Engali
Dr. Engali's picture

Up until now it was a good bet. I enjoyed selling my 10 year paper to somebody else at a premium.  

Wed, 08/08/2012 - 15:54 | 2688753 PiratePawpaw
PiratePawpaw's picture

I understand, but we have long known that one day it wouldnt be.

My position is that for some time the risk of being the one holding the bag has been greater than the reward.

Wed, 08/08/2012 - 16:02 | 2688780 Dr. Engali
Dr. Engali's picture

Well I agree with you there, but my belief has been that the treasury would be the "safe haven" trade with each market deflationary collapse until we get to the point where Ben blows up the system by going one step too far. I believe the next QE will be the step that breaks the dollar and starts the panic. I was initially going to ride treasuries down to 1% on the ten year, but I figured 1.5 was good enough. Greed kills.

Wed, 08/08/2012 - 18:03 | 2689175 YC2
YC2's picture

I figure we bust long after Japan or Europe or anyone.  Every time that happens, Ts will get bid unless it cant be contained.  If that happens, it wont matter what your account statement says anyways. 


Plus I only play this game with matched 401k money, so if SHTF I dont figure I will ever see it.  So, might as well position it for non-SHTF scenarios.

Wed, 08/08/2012 - 15:38 | 2688704 Timmay
Timmay's picture

Unless Singer has his own carrier Battlegroup and tactical nukes, I don't think Bernanke gives a crap what he thinks.

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