We want Paul Singer to talk more about Argentina, gold and warships but he refuses to fulfill these wishes. The latest from the formidable investor that comes in the form of Q2 investor letter, is focused on the global central banks, their incessant money printing schemes and ways to protect yourself from the frothy markets.
Take a look at Paul Singer’s Q1 performance and thoughts here.
Elliott Performance update
Elliott International and Elliott Associates were both up 1.9 percent in the last quarter, bringing up the first half returns to +5.3 percent. The total assets of Elliott Management are now up to $22 billion. As previously intimated, Rich Sokolow, head of Elliott’s global research group has left the firm. As market turmoil worsened towards the end of last quarter, Elliott was able to decipher some new investments based on relative value trades and event arbitrage strategy. The funds are seeing some ‘effortful’ value in the real estate events in Japan and UK.
The hedge fund lost in gold and event arbitrage in last quarter while moving up in distressed and performing debt and event driven equity trades.
Paul Singer: Most of the data in U.S is cooked
Surprisingly, Elliott sees the highest likelihood of growth in Japan which would be driven by the establishment’s commitment to get the economy out of prolonged cycle of lackluster growth. This is in contrast to the several other hedge fund managers who are although critical of Fed’s policies, still see U.S best positioned to accomplish stronger growth going forward. Singer goes as far as to say, ” America is undergoing a little data lift, but not as much as people think, because much of the data is “cooked”.” He goes on to explain his point, saying that the government takes energy and food prices out of the estimation of inflation, thus focusing on core inflation to assess nominal GDP growth. The resultant over estimation of real growth leads to cooked up numbers that are meant to placate doubts about recovery.
Inflation is in fact higher than officially reported, which means growth is actually lower than the government says it is. As for Europe, Singer is also not optimistic about the near term prospects of the union.
Paul Singer: World economy is on life support
Elliott calls the way markets moved in June, a ‘pre-crash’ signal and is disappointed that central banks are still unfazed and refuse to realize that the economy is on a slippery slope. Stock market has resumed its inflated upward journey once again. One of Paul Singer’s strongest convictions on the current economy is that there is little to no chance of systematic deflationary collapse while there is such huge amount of policy ammunition available, meaning that whenever there is a chance of a collapse in any of the economies, furious and refreshed bailouts and money printing will resume once again.
His judgement on when markets will realize that they are stuck in a period of super inflation is less certain. It remains to be seen whether the detracting worth of bonds and increase in interest rates becomes a consistent loss or investors will shake off these movements as a mere bump in the road.
Paul Singer saw the repeated assertion of central banks that rising interest rates will complement strong growth, mocked when markets shook in the last weeks of June. There was no visible strength in the economy and yields spiked all over the place in treasuries, plummeting markets all over the globe:
“The market movements in June do not bespeak a robust, solid financial system capable of withstanding the normal ebbs and flows of human events. Rather, they indicate a world on life support, with policymakers experimenting, floundering and trying to create with the appropriate jaw movements what their extreme and empirically unsound policies have failed to accomplish in actual fact. “
Paul Singer on poor condition of labor markets
Singer also points out the extraordinary proximity between the number of full time workers and those who collect disability benefits in these times when a recovery in U.S is touted everyday. The ratio between full time workers and disability beneficiaries is 13:1 these days, in stark contrast to the 1968 statistic of 50:1. He thinks this poor data indicates the increased dependence of American workforce and a very poor labor market where there are more part-time jobs and less incentives for employers to hire full time labor, all thanks to Obamacare.
Elliott’s letter goes on to explain what is a good national policy and what can be a detrimental approach, and in not-so-subtle terms criticizes how the current regime is lacking in a long term approach. The government policy has raked up debt, done little to improve the labor market and has yet to do substantial work in improving the risk management of too-big-to-fail institutions. In his words,
“There is even more to the equation than just good policies versus poor ones. Perhaps the best approach would be for the government to just get out of the way. Over a long period of time, a mechanistic and technocratic mentality has taken hold, spread by people who believe in all-encompassing central control over people’s lives, and embraced by elites who have come to believe that policies have precise and definable effects.”
Paul Singer on crummy government policies and fiscal nirvana
It seems Paul Singer is channeling Seth Klarman when he really starts bashing central bank policies. He says that the government refuses to stop its failed policies and has no courage to accept its shortfalls. Singer thinks all central banks lack sobriety and discipline and do not see that their crummy policies have failed to generate the sought after inflation which is supposed to anchor growth. He calls the money-printing-way the most risky and indirect way of stimulating growth. Just like Klarman, Paul Singer also thinks that the idea that QE will be able to control interest rates infinitely and control the strength of US dollar is foolish, as no government has ever achieved this fiscal nirvana where every global event bends to your whims. Paul Singer is just as unimpressed by the government’s arrogance, stating:
“Their [the Fed’s] lack of humility has created a distorted and inequitable “recovery.” Some social theorists rail against “trickle-down economics,” but is there any clearer and more patently unfair example of this concept than QE? The rich get richer, and the government takes credit for doling out handouts to those who have not benefited from asset-price inflation.”
Singer differs a little from Seth Klarman, on the implosion of U.S economy and its likening to a house of cards, he says that the current state may or may not be a house of cards but it is most certainly dangerous.