Hedge fund billionaire Paul Singer still sees dangerous “bubble securities, bubble asset classes” in the markets

This is hedge fund billionaire Paul Singer of Elliott Management why he believes it will take a deep recession and a credit meltdown to purge financial markets of the excesses created by more than a decade of easy money policies.

“I think this is an extraordinarily dangerous and confusing time,” Singer said in a recent interview with the Wall Street Journal, warning that troubles in the markets may not start for a year after the Federal Reserve hikes interest rates.

“The credit collapse, while terrible, is not as terrible as hyperinflation in terms of destroying societies,” he said. “Capitalism, which is economic liberty, can survive a credit crunch. We don’t think it can survive hyperinflation.”

Singer, described by the New Yorker as a “dooming investor” in part because of his epic battle with Argentina over its defaulted debt, is not a fan of sweeping banking regulations stemming from the 2010 Dodd-Frank Act or continued market interventions by global central banks in the wake of the global financial crisis 2008 or cryptocurrencies.

In his WSJ interview, he called crypto “completely worthless.” He also said: “There are thousands of cryptocurrencies. Therefore they are worth zero. Anyone can make one. Everything they are is nothing with a marketing pitch — literally nothing.”

Bitcoin

BTCUSD

was approaching $30,000 on Monday but was still below its record price of around $67,000 in November 2021, according to CoinDesk.

Singer fears that the Fed and other central banks will respond to the next downturn by resuming their recent playbook of rate cuts and possibly resuming large-scale asset purchases.

To support his point, Singer described the regulatory response to the collapses of Silicon Valley Bank and Signature Bank, including guaranteeing all deposits from the two lenders, as “wrapping all market movements in security blankets.”

“I know those guys got fired, but all concepts of risk management are based on the possibilities of loss,” he said. “Take it away, there will be consequences.”

With that in mind, Singer said there may be few places for investors to weather the storm he sees brewing.

“At such times, some consider the safest bet to be relatively short-dated US Treasuries,” Singer said, adding that “such debt pays a decent rate of return and has virtually no chance of a negative outcome.”

Singer also said to have some gold

GC00

in portfolios can be useful.

The 2-year Treasury interest rate

TMUBMUSD02Y

was around 4% on Monday while the 10-year yield

TMUBMUSD10Y

was 3.24% according to FactSet. Stocks traded between small gains and losses with the S&P 500 Index

SPX

approx. 0.1% higher in the last test.