Over the past month, between Stan Druckenmiller, Carl Icahn and most recently George Soros, it has become positively cool to be a billionaire who has turned their back on the rigged market, and has decided to either get out of stocks or go outright net short (Soros and Icahn), while concurrently buying gold. Over the weekend, yet another billionaire made waves, when Paul Singer told Institutional Investor in an interview that not only has the Fed’s “monetary extremism” hindered economic expansion, blasting monetary policy as adding to not only the world’s debt but its social problems (including lack of wage growth), warns that “at the moment we’re either in a stage of stagnation or rollover, possibly in the early stages of a global recession”, predicts that “it’s a very dangerous time in the financial markets” and concludes that “we’re very bullish on gold, which is the anti–paper money, of course, and is underowned by investors around the world.“
As Institutional Investor writes, one of the
keys to Elliott’s success has been Singer’s ability
to avoid losing money during market dislocations. “If you
break even in a bear market or crash or financial crisis,
you’re way ahead of the game,” he says. The legendary
investor, who will be receiving an IInvestor Lifetime Achievement Award at the firm’s annual Hedge Fund Industry Awards dinner on June 23 at the
Mandarin Oriental in New York, recently spoke with
Michael Peltz about the
challenges he sees in the current global macroeconomic
environment.
He was very, very bearish.
Why have developed economies been unable to achieve
the growth they had prior to the global financial
crisis?
I believe the reason is a bad policy mix due to an
unwillingness on the part of all of the governments of the
developed world to take the normal and obvious fiscal steps to
increase growth. Instead, in the absence of pro-growth policies
on the fiscal side, the sole support in the developed world has
been monetary policy. There’s been a more or less
universally practiced set of monetary policies consisting of
zero and now negative interest rates and so-called quantitative
easing — various forms of asset buying. It started out as
all bond buying, but now it’s leaked into equities. The
result of all that — I call it monetary extremism —
is that the economies have held up and had some growth, but
that growth has been tepid, with the biggest gains going to
those who own financial assets while wage growth has been
stagnant.
What has been the biggest impact of monetary
extremism?
The major impact has been this exacerbating effect on
inequality. The large rise in asset prices in conjunction with
continued sluggish growth is a terrible mixture, and it is part
of the equation of why you have this bubbling-up edginess in
society among the middle and working class in the developed
world because of underemployment. The cure for the crisis
— for the debt crisis, the financial crisis — has
been deemed by the developed world governments to be more debt.
There has not been a deleveraging. And after seven and a half
years and counting of this mix of policies, at the moment
we’re either in a stage of stagnation or rollover,
possibly in the early stages of a global recession. So I think
it’s a very dangerous time in the financial markets.
Have policymakers relied too much on central banks
to fix the global economy post-GFC?
Well, that’s a great question, because I’d go
further. The lack of humility among central bankers —
which is proven by the combination of no apology and no
understanding of the financial system precrisis, and by
continuously, significantly erroneous projections postcrisis
— is incredible. At the same time, presidents and prime
ministers have been perfectly willing, desirous even, of
letting the central bankers continue their emergency
policies. They are grateful to the
central banks for holding up the world, which gives them
— the presidents and prime ministers — the excuse
not to engage in pro-growth policies. So they can stand there
and bash capitalists or bankers and get votes that way,
because it distracts attention from their own failures. But
bashing capitalism is ultimately dangerous. The reason
policymakers think it works is because seven and a half years
and counting, the world hasn’t fallen apart and they
haven’t been called to task.
What can policymakers do to avoid another
crisis?
Policymakers can transition the financial system into
being sounder and more transparent, and transition macro
policy away from quantitative easing. Stop the bond buying,
stop the equity buying, but only while simultaneously
implementing pro-growth policies in the tax, regulatory and
structural areas. If not actually cutting taxes, making
business formation easier and making their regulatory
environments attractive to business location and expansion
— including improvements in trade policy, education
policy and job training and retraining. Raising interest
rates and stopping QE without structural, pro-growth reforms
would be negative, creating an instant recession. So you have
to do both, together.
What can investors do?
We’re very bullish on
gold, which is the anti–paper money, of course, and
is underowned by investors around the world. And we are very
skeptical about markets. We hedge every equity position.
We’re not in the mood to be surprised — surprised
in the sense of losing large amounts of money — ever,
but in particular now with this extraordinary and
unprecedented situation where the stability of financial
markets is so dependent on confidence in policy makers and
central bankers.
I believe the reason is a bad policy mix due to an
unwillingness on the part of all of the governments of the
developed world to take the normal and obvious fiscal steps to
increase growth. Instead, in the absence of pro-growth policies
on the fiscal side, the sole support in the developed world has
been monetary policy. There’s been a more or less
universally practiced set of monetary policies consisting of
zero and now negative interest rates and so-called quantitative
easing — various forms of asset buying. It started out as
all bond buying, but now it’s leaked into equities. The
result of all that — I call it monetary extremism —
is that the economies have held up and had some growth, but
that growth has been tepid, with the biggest gains going to
those who own financial assets while wage growth has been
stagnant.
The post Paul Singer Joins Icahn, Soros; Warns “It’s A Very Dangerous Time To Be In The Market”, Buys Gold appeared first on crude-oil.top.