market folly

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Paul Singer of Elliott Management, a ~$20 billion hedge fund.  He presented a financial overview and talked about quantitative easing and the need for economic growth.


Financial Overview & History of Markets

Singer gave a “history of financial markets since WWII.” There was less debt back then. Sound financial institutions. "Long term entitlement programs are the effective equivalent to debt." Countries are unwilling to even do non-threatening changes to these entitlement programs.

In Japan, it is 800% of GDP. In US, 500% of GDP. "Obligations that cannot possibly be met, no matter what the tax rate, or the growth rate." Financial institutions are now doing not just loans, but they are doing a lot of principal trading. Typical bank now: 200B equity, 2- 3T of assets, and 50-80T of notional value of derivatives. He claims it is hard or impossible to know what those derivatives actually are. Still completely opaque, and their risks are not understandable. VAR totally misstates risks. Also highly levered.

"Central Banks have reveled in their role, flooding the market with money, they think printing money is 'free' and they don't see the cost- since there is no inflation." We have modest growth, and build-up of risk. "The world needs growth; from innovation." Quantitative easing has caused a distorted recovery. People owning bonds, stocks, is doing fine. Ordinary citizens are not feeling the effective equivalent of Dow 15,000. Causing class warfare.

His idea: Those who own long-term bonds of US Governments or others, own things that are not priced correctly. There is no safe haven in these markets. There is no such thing.


Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.