“ ‘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.’ ”
That’s billionaire Paul Singer of Elliott Management suggesting that the market for equities has pretty much jumped the shark, in a Jan. 28 letter to clients, as reported by Bloomberg on Friday.
Stocks on Friday capped a bruising week with sharp losses as interest rates have taken a slow and then sudden course higher, with investors also fretting about lofty valuations in everything from so-called meme stocks, being whipped higher by investors massing on Reddit, to bonds, which may be facing a reckoning on elevated inflation expectations.
Long-dated U.S. government bonds saw their biggest monthly yield gain since 2016, meaning prices of risk-free fixed-income bets got hammered. And investors are worrying that the Dow Jones Industrial Average DJIA, -1.50%, the S&P 500 index SPX, -0.48%, and the highflying and technology-fueled Nasdaq Composite COMP, +0.56% face a tough road ahead as higher lending rates make speculative equities less attractive.
In any case, Singer believes that the market is out of whack and warns that wagers on bitcoin BTCUSD, +4.56% and richly valued companies like electric-vehicle maker Tesla Inc. TSLA, -0.99%, championed in his estimation by an investment mob, will eventually have him and his team at Elliott declaring, “We told you so.”
Bloomberg reported that Elliott Management, which braced for the pandemic stock-market crash far earlier than other investors, made money in every month of 2020, even during the carnage of March. Stock benchmarks hit the year’s nadir on the 23rd of that month.
Elliott, which manages more than $40 billion, has registered annualized gains of about 13% in its 44 years, beating the S&P 500 index. Singer’s net worth, meanwhile, stands at $3.6 billion, according to Forbes.
Even before the advent of the coronavirus-borne disease COVID-19, Singer had been preparing for a big market drop. Back in 2017, he raised $5 billion for a rainy-day fund in preparation for what he described in a letter as a time when “all hell” breaks loose. Back then the market was in a period of quiescence, remaining stubbornly buoyant, due partly to investors’ propensity to buy leveraged VIX VIX, -3.25% products and treat market dips as opportunities, until that trade imploded.
It is unclear what hell looks like to Singer now, but it is apparent that he maintains less-than-favorable outlooks on the economy and the market, even as vaccine rollouts and pandemic relief legislation make the prospect of a solid recovery from the worst pandemic in over a century likelier.
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