Paul Singer is bracing for ‘all hell to break loose’ in the stock market(marketwatch.com)
marketwatch.com
Paul Singer is bracing for ‘all hell to break loose’ in the stock market
http://www.marketwatch.com/story/why-one-hedge-fund-titan-is-bracing-for-all-hell-to-break-lose-on-wall-street-2017-05-26
9 comments
Market prognostication isn't generally good for your sanity or financial wellbeing, and MarketWatch is kind of a trash site, given to talking about technical indicators and support levels and other BS like that.
That said, there are a number of aspects to the current economy that I find deeply worrying - incredibly high housing/healthcare prices that are seemingly disconnected from reported inflation metrics and median wages, the US at record debt levels relative to GDP (if you count household+government debt), worldwide cash printing, with only assets growing in price to match, and a ferocious property bubble in China. If the last one pops, it seems likely that the money flowing out of China into US property markets will drop out, which would take out the upward pricing pressure, and probably ding US property values quite rapidly, since most people here can't reasonably support the cost of houses here on median wages with anything over rock bottom interest rates. This would seem to make existing secured loans a whole lot less secured than they were before. Also worryingly, banks are compensating for unaffordability by requiring less money down, and covering the difference with PMI (insurance). I think the US populace might simultaneously be nearing the breaking point in terms of the debt it can support due to years of easy money discouraging frugality. If spending dropped off due to an inability to spend more, that would ding the corporate earnings supported by credit, which would spike PE ratios, unless P dropped a lot.
In short, if these things come to a head in proximity to each other, it seems like we might really be in for a shitstorm, which may include a large dose of inflation and bond yields rising if central banks need to redeem a chunk of that US debt they've been gobbling up for its historical safety, in order to compensate for flagging economies to meet their spending obligations.
I really hope I'm wrong (and please tell me why, if I am), but our fundamentals don't seem to support the prices, unless the market is saying the dollar is worth a whole lot less than we think it is.
That said, there are a number of aspects to the current economy that I find deeply worrying - incredibly high housing/healthcare prices that are seemingly disconnected from reported inflation metrics and median wages, the US at record debt levels relative to GDP (if you count household+government debt), worldwide cash printing, with only assets growing in price to match, and a ferocious property bubble in China. If the last one pops, it seems likely that the money flowing out of China into US property markets will drop out, which would take out the upward pricing pressure, and probably ding US property values quite rapidly, since most people here can't reasonably support the cost of houses here on median wages with anything over rock bottom interest rates. This would seem to make existing secured loans a whole lot less secured than they were before. Also worryingly, banks are compensating for unaffordability by requiring less money down, and covering the difference with PMI (insurance). I think the US populace might simultaneously be nearing the breaking point in terms of the debt it can support due to years of easy money discouraging frugality. If spending dropped off due to an inability to spend more, that would ding the corporate earnings supported by credit, which would spike PE ratios, unless P dropped a lot.
In short, if these things come to a head in proximity to each other, it seems like we might really be in for a shitstorm, which may include a large dose of inflation and bond yields rising if central banks need to redeem a chunk of that US debt they've been gobbling up for its historical safety, in order to compensate for flagging economies to meet their spending obligations.
I really hope I'm wrong (and please tell me why, if I am), but our fundamentals don't seem to support the prices, unless the market is saying the dollar is worth a whole lot less than we think it is.
I wonder (genuinely) if somebody couldn't just as easily create a list of positive signs. Consumer confidence, steady job growth, whatever...
For example, you mention growing healthcare costs (true!). But isn't it ALSO true that far fewer people (50%) are filing for bankruptcy since before the ACA? Shouldn't that be a stabilizing force? (Assuming it remains.)
To be clear, I'm not arguing you're wrong. Just that it's hard to predict anything, which I think you'd agree with.
For example, you mention growing healthcare costs (true!). But isn't it ALSO true that far fewer people (50%) are filing for bankruptcy since before the ACA? Shouldn't that be a stabilizing force? (Assuming it remains.)
To be clear, I'm not arguing you're wrong. Just that it's hard to predict anything, which I think you'd agree with.
Yeah, I'd love to see it, and I definitely agree that it's impossible to predict the future with any degree of certainty.
One of the big reasons for medical bankruptcy is the loss of income without the loss of expenses despite having medical insurance, but I'm sure it's better now that we don't have lifetime max coverage limits and that sort of thing.
One of the big reasons for medical bankruptcy is the loss of income without the loss of expenses despite having medical insurance, but I'm sure it's better now that we don't have lifetime max coverage limits and that sort of thing.
I find it interesting how rare it seems that people "analyzing the market" don't (at least openly) look at what is actually causing the market to grow.
They seem to focus more on the financial signals, as opposed the the underlying innovation, infrastructure, logistics, or even sales in some cases.
Overall, We've seen a pretty massive uptake, but we also only recently returned to pre-2008 valuations of companies. That's a decade of next to no growth in businesses (supposedly). However, I seriously doubt most businesses that survived the crash don't have more infrastructure today. Meaning, I'm confident they are actually worth more today (on average), regardless of what the financial signals say today.
That being said, I'm actually working on a project[1] which uses other signals (other than financial) to determine a companies worth. Primarily, we are focusing on identifying "experts" in a companies field, and determining the brand strength with those experts. We are also looking at financials, generally how often they are discussed, etc. but the real value comes from the experts opinion. Seems to work better than Paul Singer's approach.
Although, the one thing I will say about the potential for economic collapse is:
> Singer is among those fearing that very scenario. He is betting that an economic recession may be on the horizon and believes that, with interest rates already near ultralow levels, the Federal Reserve won’t be able to provide a sufficient quantitative-easing cushion, as it did during the 2008-’09 financial crisis.
He is correct about that :p, that's probably my largest fear in regards to the current fed policies.
[1] https://projectpiglet.com/
They seem to focus more on the financial signals, as opposed the the underlying innovation, infrastructure, logistics, or even sales in some cases.
Overall, We've seen a pretty massive uptake, but we also only recently returned to pre-2008 valuations of companies. That's a decade of next to no growth in businesses (supposedly). However, I seriously doubt most businesses that survived the crash don't have more infrastructure today. Meaning, I'm confident they are actually worth more today (on average), regardless of what the financial signals say today.
That being said, I'm actually working on a project[1] which uses other signals (other than financial) to determine a companies worth. Primarily, we are focusing on identifying "experts" in a companies field, and determining the brand strength with those experts. We are also looking at financials, generally how often they are discussed, etc. but the real value comes from the experts opinion. Seems to work better than Paul Singer's approach.
Although, the one thing I will say about the potential for economic collapse is:
> Singer is among those fearing that very scenario. He is betting that an economic recession may be on the horizon and believes that, with interest rates already near ultralow levels, the Federal Reserve won’t be able to provide a sufficient quantitative-easing cushion, as it did during the 2008-’09 financial crisis.
He is correct about that :p, that's probably my largest fear in regards to the current fed policies.
[1] https://projectpiglet.com/
I'm no macroeconomist, but I would agree the signs have been building to a crescendo, very reminiscent of 2005-2007 feel when more and more voices were sounding the alarm.
In brief I would mention: credit card & student debt bubble; housing market re-inflation to pre-crash levels; stock market at new highs and a decade since the last recession; being in ZIRP and pushing on a string for so long we're out of monetary policy ammo and have a near total lack of political willpower for real fiscal policy changes, leading to the lack of much apparent recovery or health in the real economy outside a few sectors; the worsening inequality continuing to hollow out the middle class; the ongoing / accelerating wave of automation; approaching shark-jump territory in tech with a lot of signs the zirped-VC is drying up.
The whole "main street" economy has a Weekend at Bernie's feel of a dead guy being dragged around by some people who don't want the party to stop.
In brief I would mention: credit card & student debt bubble; housing market re-inflation to pre-crash levels; stock market at new highs and a decade since the last recession; being in ZIRP and pushing on a string for so long we're out of monetary policy ammo and have a near total lack of political willpower for real fiscal policy changes, leading to the lack of much apparent recovery or health in the real economy outside a few sectors; the worsening inequality continuing to hollow out the middle class; the ongoing / accelerating wave of automation; approaching shark-jump territory in tech with a lot of signs the zirped-VC is drying up.
The whole "main street" economy has a Weekend at Bernie's feel of a dead guy being dragged around by some people who don't want the party to stop.
Here's Paul Singer warning us in 2014 that "the threat of a widespread blackout from an electromagnetic surge the "most significant danger" in the world":
http://www.cnbc.com/2014/07/29/paul-singer-this-threat-is-he...
All the signs are there! Seriously, some financial blowhard says something like this every day; why is this news?
http://www.cnbc.com/2014/07/29/paul-singer-this-threat-is-he...
All the signs are there! Seriously, some financial blowhard says something like this every day; why is this news?
It's apt to point out that Mr. Singer intends to profit on the long side. How many souls find themselves in the same predicament. Fearmongers will benefit from reading Triumph of Optimists by Dimson, Marsh and Staunton.
https://www.amazon.com/Triumph-Optimists-Global-Investment-R...
Mr Singer is a bottom feeding parasite, the poster child for vulture capitalism. Anything he can do to destabilize financial markets for his own gain, regardless of cost to everyone else, is all he cares about. I hope karma is a bitch for him....
Separately there are lots of very worrying issues about the global economy, Mr Singer would love to upset the applecart and profit from the carnage.
Separately there are lots of very worrying issues about the global economy, Mr Singer would love to upset the applecart and profit from the carnage.
All the signs are there, but as usual there's no shortage of people claiming this time is different again.
what signs? it's hard to predict the future. Assets are expensive but it doesn't mean they can't get even more expensive
If nothing else, one can examine the current expansion's duration against the history of other expansions.
The longest business cycle expansion in U.S. history lasted 119 months. The current one is going on 97 months.
Even in the absence of "signs", one could make a rational bet that we are much nearer the end of the current run than the beginning, particularly with the headwinds of rate hike expectations.
Unless, of course, it really is different, this time.
The longest business cycle expansion in U.S. history lasted 119 months. The current one is going on 97 months.
Even in the absence of "signs", one could make a rational bet that we are much nearer the end of the current run than the beginning, particularly with the headwinds of rate hike expectations.
Unless, of course, it really is different, this time.
The article cites prices drifting ever higher with low volatility. Even as a card-carrying market prediction skeptic, I think this has to be seen as worrying because it implies the market is detached from the usual random news events that should each cause price movements. Certainly when there are no corresponding "you've never had it so good" economic conditions.
[deleted]
In other words, Singer is wrong.
There are two facts about stock market prognostication:
1. At any given point in time you will always be able to find someone on Wall Street predicting that the market will crash Real Soon Now.
2. Market crashes are inevitable.
Hence, when market crashes happen you will always be able to find someone who predicted it. The trick is to sort out that correct prediction from the myriad wrong ones before the crash. No one has cracked that nut yet.