Paul Singer Warns “All Hell Will Break Loose”
by Tyler Durden
ZeroHedge.com
May 30, 2017
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 Rest…HERE
