Elliott Management, the $31.6 billion New York hedge fund run by Paul Singer, is prepping for a wide swath of market moves as Donald Trump’s presidency takes shape.
“Now more than ever, we want to be positioned for as many permutations as possible in order to preserve capital if market conditions deteriorate,” Elliott wrote in its fourth-quarter letter released in January, a copy of which was reviewed by Business Insider.
Investors are battling uncertainty from the US in the wake of President Trump’s election win. Stocks had rallied to record highs since the election in November, but dropped earlier this week following President Trump’s US travel ban from seven Muslim-majority countries.
In its letter, the hedge fund firm said it would not try to predict “the success or failure of a government’s economic and monetary policy mix,” but added that “it is essential to try to figure out how the central banks will exit from QE, ZIRP and NIRP,” referring to measures that global central banks took following the 2008-09 financial crisis.
“There is a deep underlying complacency which we think permeates global financial markets,” the letter added. “We believe that the global confidence in the placidity and boundaries of inflation (and global financial risk) is misplaced and overdone.”
Here’s more from the letter (emphasis added):
“Because the monetary policies pursued throughout the developed world since the GFC were unprecedented, the outcomes of the foregoing scenarios are unknowable. Nevertheless, it is essential to try to figure out how the central banks will exit from QE, ZIRP and NIRP. It will be interesting to watch. If inflationary expectations get rolling, it might be amazing how quickly they take hold. “Very quickly” would be in rough alignment with the magnitude of the monetary extremism of the post-GFC period, but there is no way to predict exactly how it will all play out.
There is a deep underlying complacency which we think permeates global financial markets. The basically-low volatility of the last eight years has led to a widespread assumption that financial market volatility has been bottled and will remain controlled. Moreover, despite the radical monetary policy which has become orthodoxy for the entire developed world’s central banks, there is no fear of a near-term eruption of significant systemic price inflation. It is a fool’s errand to predict the near-term course of inflation (and global central bankers and policymakers have failed miserably and continuously in performing this errand), but we believe that the global confidence in the placidity and boundaries of inflation (and global financial risk) is misplaced and overdone.
The Elliott Associates L.P. fund returned 4.4% for the fourth quarter and 13.1% last year, according to the letter.