• Paul Singer sees a significant risk of recession
• There is a risk of a long phase of low yields
• Investors have few meaningful options
Paul Singer has expressed concern over the past several years about the expansionary monetary policy expressed by the US Federal Reserve. In view of the current bank quake, the billionaire, who had already warned of the dangers of subprime mortgages in the run-up to the 2008 financial crisis, now feels reaffirmed: “I think we are in an extremely dangerous and confusing phase,” said 78- year-old during an interview with the Wall Street Journal.
Singer is pessimistic
The Fed is currently fighting rampant inflation with an unprecedented series of large rate hikes. The key interest rate was last raised in March 2023 by 0.25 percentage points to a range of 4.75 to 5.00 percent. In mid-February, the monetary watchdogs slowed the pace of interest rate hikes and raised the base rate by 0.25 percentage points. In the past year, she had raised interest rates in big steps. At the beginning of March 2022, the key interest rate was still zero percent. However, this tightening of monetary policy was not without negative consequences. The Silicon Valley Bank (SVB) went bankrupt at the beginning of March 2023 as a result of the sharp rise in key interest rates in connection with home-made problems, and other medium-sized US banks also got into a crisis.
But Singer fears that the troubles in the markets could only begin a year after the Fed hiked interest rates. “There is a significant risk of recession,” Singer said in the interview. But he sees this not only negatively. The activist investor believes that a credit collapse and a deep recession are necessary to financial markets to rehabilitate sustainably. In his opinion, this is the only way they can be freed from the excesses that have arisen as a result of years of cheap money politics. “While a credit collapse is terrible, it’s not as bad as hyperinflation, which would mean the collapse of society,” Singer said.
consequences for investors
“Valuations are still very high,” the Wall Street Journal quotes the founder of the investment company Elliot Investment Management. He said: “We see the possibility of a long period of low returns on financial assets, low returns on real estate, corporate earnings, higher than current unemployment rates and lots of inflation in the next round.”
In view of this, investors would have little opportunity to protect themselves. However, short-dated US Treasury bonds would at least “provide a decent return with no likelihood of a negative outcome.” It could also make sense to have some gold in your portfolio.
Worthless Cryptocurrencies
Paul Singer firmly rejects the thesis that cryptocurrencies are a safe-haven asset, which is widespread among crypto enthusiasts: “There are thousands of cryptocurrencies. That’s why they’re worth nothing. Anyone can make one. They’re just nothing with one marketing pitch – literally nothing,” is his harsh verdict.
Marathon Petroleum and Pinterest in focus
According to Yahoo Finance, two of the largest holdings in Elliott Investment Management’s portfolio are shares in the two US groups Marathon Petroleum (10.5 percent) and Pinterest (5.5 percent). According to the data page TipRanks, 11 analysts rated the refinery company as buy and two as hold. The average price target in one year is given as $151.31. The social media platform was also ranked seven times as a buy and 15 times as a hold – with an average target price of $28.81.
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