Rough notes of Paul Singer’s speech from the 2016 Delivering Alpha Conference. These are VERY rough notes please keep in mind but the theme is not surprising
We’re in the middle of a close to 40 year experiment in how leveraged can the system be and in how many ways. The global derivatives market today is something like 4 trillion 1:26
Central bankers say growth hasn’t really picked up but in the absence of what we’re doing it would have been a lot worse. I don’t think that’s right. I think that’s possibly right as far as it goes, meaning because of the lack of the obvious low hanging fruit of fiscal policies, that would restore levels of growth significantly higher than those described by Ray Dalio and Tim Geithner, would restore that to the developed world. In the absence of fiscal policies in tax, regulation, trade, education, policies that would deal with the the consequences of technological obsolescence, in the absence of those pro growth policies then sure monetary policy is the only game in town.
But 8 years of ever declining rates and ever increasing radicalism in other monetary policies have not created a sustainable, accelerating uptick in growth. 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 and i think it’s a v dangerous time in the global economy and global financial markets.
I went to policy markets in Germany, they were a little more crecepitve. 5:29
It was practitioners not academics and policy makers that had a deep understanding of where the financial system was in terms of risks. The second thing that struck me about that is the amazing arrogance of the policy makers. They didn’t listen they treated us as if we were ignorant children and of course they didn’t do anything either did the German policymakers parenthetically, but after the crash it’s all been one way. The emergency action following the crash despite the fact that central bankers including the fed had no idea the risks that were building,. To the confluence of these risks , the leverage, the structured products, the real estate boom in a self reinforcing dance, and so the credibility of the fed and the treasury going forward was severely challenged, but the immediate aftermath of the crash, policy.. The crash period occurred over a period of weeks or months, by the middle of 2009 pivot...in japan Europe UK, no country made the pivot to the other policies that could make the economy, that could restore growth that could cure the structural impediments to growth and bring growth back to something closer o the previously experienced levels of growth 7;55
I believe that the us is limited to the assumption of 1.5 or 2% per year real growth going forward, and i certainly don't believe that if it is limited it’s related to demographics
Something significantly north of 2% that U.S. is stuck in or 1 -1.5% that Europe is stuck in.
In tow months.. We’ll know if both of these people are on the stage
I think pro growth policies could and would increase growth. I believe it would have been vastly different for the growth rate of the American economy and the problem of underemployment and the reduction in the labor force participation rate… had Mitt Romney been elected president. There would have been a number of policies in tax and regulation that would have generated a higher rate of growth as distinguished from the counting of growth suppressive polices.
Aside from the polices of that the president and congress could engage in to make the economy work better, i also believe that the monetary extremism, zero percent interest rates, QE, funding infrastructure spending by helicopter money, the entire constellation of monetary policies post 08 has been strongly growth suppressive. Bank margins have been suppressed. The incentives for banks to do normal lending vs financial engineering buying bonds and being guaranteed toward a position return…11:22
I think about what’s happened in the last few days… with the rates that currently exit in current bond markets the term safe haven applied to g7 bonds is just wrong. These are not safe havens. In fact here is a termeouns at of risk 10 20 and 30 year bonds at these rates and in the last few days there have only been hints at stocks and bonds going up together for along period of time could have some kind of symmetry and be matched at some point by stocks and bonds going down simultaneously. That would not only put a dent in institutional portfolios but strategies like risk parity that actually make the case that leveraged longs in bonds hedge long positions in equities and that you should match the volatility of your holdings not just …
My day job.. At the moment... Is to make money all the time...13;30
As hard as I try to figure out for our own purposes.. Its’ impossible to say (what happens if equities and bonds continue to fall together)
I think that’s exactly the right question. I think its’ unsuitable to have central bankers do the only job of supporting the local economy and certainly the developed world economy… central bankers and policy makers don't want stock and bond prices to go down. So all this buying these threats that we’ll do whatever it takes these incipinst signs of perhaps global recession., that maybe we’ll muddle along… must be scaring policy makers but they seem paralyzed an certainly through ideology and other pol considerations, presidents PMs treasury officials around the globe are not picking u p the ball. A further result of all of this is to texacerbate inequality… because through no fault of their own people who own stocks and bonds and high end real estate well off people that can buy and service them, well of people are doing great, inequality is being eacerbated by these policies
The global financial system ad economy is so fragile because of debt that all of this conversation about the next 25 or 50 bps of interest rate hikes in the US, the possibility that the Japanese and the European policy makers wont make policy rates more deeply negative, these kinds of portents cause a ruckus
You cannot just raise interest rates without doing something else. If interest rates are being raised and the holding of bonds and stocks and MBS and many people in the room might not know that the BOJ is a top ten shareholder in 90% of Japanese public equities. This is insane, this is not working but they keep going
You want to raise interest rates.. To give yourself room in the next crash
Do it with tax and regulatory concerns
I think central bank independence is