Paul Singer: 'Severe Risk of Another Financial Crisis'
Friday, 01 Nov 2013 09:04 AM
The conservative Singer, whose Elliott Associates hedge fund manages $23 billion in assets, took the Fed to task in a client letter obtained by CNBC.
"We believe that continued QE will not accelerate the economic recovery. . . . The recovery and the economy are distorted and unfair to ordinary citizens who do not own stocks or high-end real estate, which are priced at their highs," Singer said.
"ZIRP (zero interest-rate policy) and QE [quantitative easing], therefore, are placing the economy at severe risk of another financial crisis and possibly a spike in inflation for no societal benefit."
The populist-sounding Singer's fund has earned a 14 percent annualized return since it launched in 1977, compiling one of the top long-term records among hedge funds.
Singer wrote it is unclear to him whether stocks are at all-time high because of bright optimistic prospects, QE "or the beginnings of a loss of confidence in paper money."
"The markets' ability to withstand any adversity is highly questionable, and it appears to us that the Fed is basically paralyzed (though they would probably call it 'focused and determined') and afraid (perhaps they would say 'prudently risk-averse') to reduce, much less eliminate, its bond buying," he noted.
"In this environment, plain-vanilla ownership of stocks or bonds represents a highly conjectural bet on government-manipulated markets."
Singer also slammed Obamacare as the leading edge of a fresh disaster.
"[It] may just be the introduction to the surprises and frustrations that are likely to befall tens of millions of Americans in the next few years," he predicted.
"To those who get something free that they never got before, or for which they paid more before, ACA [Affordable Care Act] may be a wonderful thing," Singer wrote. "To those who either lose their existing health plans, are forced to pay for something they don't want to pay for, or experience an alarming degradation in the quality of their health services or waits for appointments that they never experienced previously, ACA will be a bitter pill indeed."
The Washington Post reported a new survey of wealthy Americans shows most of them believe the economy is doing fine, but that a separate poll of average citizens found 75 percent describe the economy as "negative" or "poor."
In an opinion piece for Fox News, John Stossel called for the wings of the central bank to be clipped and its power to be rolled back.
"The Fed, created to shore up capitalism, has become an instrument of government economic management not so different from a socialist planning board: a tiny handful of powerful people attempt to fine-tune the entire economy," Stossel wrote.
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Author John Mauldin to Moneynews: Fed Has US Hooked on 'Morphine'
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