Paul Singer Warns of Trouble, and Is Eager to Say ‘Told You So’ about:reader?url=https://www.bloomberg.com/news/articles/2021-02-26...

bloomberg.com

Paul Singer Warns of Trouble,

and Is Eager to Say ‘Told You
So’
Katia Porzecanski, Nishant Kumar
4-5 minutes

Paul Singer

Photographer: Misha Friedman/Bloomberg

Photographer: Misha Friedman/Bloomberg

To crypto true-believers, meme traders, and Elon Musk

fans, hedge fund titan Paul Singer can’t wait to say, “I
told you so.”

Offering a curmudgeonly riposte to today’s raucous

financial markets, the 76-year-old billionaire said in a
letter to clients of his $42 billion Elliott Management
Corp. that a “flamboyant line-up” of excesses will come
back to haunt investors. To Singer, who has long

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warned of an ugly end to the Federal Reserve’s easy-

money policies, it’s all just a bit too much.

“We believe that hindsight will show the champion of

head-smacking craziness in the American stock market
to be the period playing out right now,” Singer wrote in
the Jan. 28 letter.

In his view, the Fed’s current iteration of quantitative

easing paired with trillions of dollars of stimulus to
counter the pandemic are setting things up for a fall.
Rampant inflation will shock policy makers, stock
pickers and bond investors, alike.

“‘Trouble ahead’ is signaled by a rare combination of

low-quality securities, staggering valuation metrics,
overleveraged capital structures, a scarcity of honest
profits, a desperate dearth of understanding evinced by
the most active traders, and economic macro prospects
that are not as thrilling as the mobs braying ‘Buy! Buy!’
seem to think,” he wrote.

Singer Says Long-Term Bonds Are a ‘Senseless’

Speculative Trade

Markets have begun to show cracks in recent days.

Benchmark 10-year Treasury yields catapulted to their
highest in more than a year, equities tumbled, and

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traders yanked forward their opinion of how soon the

Fed will tighten monetary policy.

While pledging to stick to the basics at his multistrategy

operation -- which has lost money in just two years
since its 1977 inception -- Singer exuded frustration at
what he sees as the hysteria driving everything from
Bitcoin to government debt -- a “return-free risk,” as his
letter put it.

Elliott made money every month in 2020, even in the

March rout, gaining 12.7% for the year, thanks to “a
combination of portfolio-protection trades related to
interest rates and gold, together with our core activities”
including distressed debt, equity activism, and private
equity.

The firm has registered annualized gains of about 13%

in its 44 years, beating the S&P 500 Index.

For a “reality check” on U.S. stocks, he pointed to

Musk’s Tesla Inc., which trades at about 1,000 times
earnings while “every other major carmaker in the world
is rolling out electric vehicles in the near future.”
Addressing its shareholders, “good luck ‘you few, you
happy few, you band of brothers’ and sisters,” he wrote.

But nothing has exercised the Republican donor like

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the boom in cryptocurrencies, which he has long called

a fraud. Bitcoin has soared almost 70% this year alone
and reached a record $57,350 on Feb. 21. Watching
the digital currency rocket on the back of stimulus
measures had the fund manager grasping for coping
mechanisms.

“Pulling out your hair is an option, though only if you

have hair to spare,” the mostly bald Singer wrote.
“Hiding under the bed to avoid people who gloat about
being long Bitcoin can get…tiring. Deep breathing
exercises can work, but only for short periods. We
continue to press on for the day when we can say, ‘We
told you so.’”

And even as the world begins to recover from the

pandemic, Singer urged keeping expectations in check.
Certain industries and activities, like commercial real
estate, movie theaters, retail, restaurants and business
travel, will continue to be significantly challenged -- in
some cases permanently, he said.

In the meantime, he wrote, the recovery will be stymied

by virus variants and policies “that sometimes seem
governed by short-term political pressures rather than
what is best for society, short and long term.”

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