Paul Singer just became the latest investing luminary to warn that the unprecedented monetary stimulus adopted by the Federal Reserve and other major central banks in Europe and Asia has elevated market risks to their highest levels since before the great financial crisis.
“I am very concerned about where we are,” Singer said Wednesday at the Bloomberg Invest New York summit.
“What we have today is a global financial system that’s just about as leveraged - and in many cases more leveraged - than before 2008, and I don’t think the financial system is more sound.”
http://www.bloomberg.com/api/embed/iframe
“I don’t think that the fixes that have been put into place have actually created a sound financial system. I don’t believe that confidence is justified in policy makers and central bankers.”
"If and when confidence is lost, it could be lost in a very abrupt fashion causing conceivably a ruckus in bond markets, stock markets and in financial institutions.”
Years of rock-bottom interest rates have reduced central banks’ ability to contend with any downturns, Singer said, while “suppressive” fiscal, regulatory and tax policies – along with an “incomplete” recovery - have exacerbated income inequality and led to the rise of populist and fringe political movements, he said.
Singer, who says he’s been a conservative since the days of Barry Goldwater, voted for President Donald Trump in November after initially supporting Florida Senator Marco Rubio during the primary. Elliott Management Corp, the activist hedge fund founded by Singer in 1977, made headlines last year when the government of Argentina agreed to pay it and three other funds nearly $5 billion to settle claims on bonds that Argentina had defaulted on 15 years prior. For their part, central bankers have continued to promise more of the same: ECB President Mario Draghi said Thursday that the central bank will continue to prop up the eurozone bond market for the foreseeable future. The ECB, he said, stands ready to expand its program of asset purchases if things get rocky. The VIX, the US market’s preferred gauge of implied volatility, remains near record lows reached last month – a sign that investors are still dangerously complacent about the possibility of a selloff, even with US equities overvalued by every conceivable metric.
Other participants of the Bloomberg Invest summit were similarly gloomy. In addition to the dire warnings from Singer and PIMCO founder and current Janus Capital PM Bill Gross, TPG’s Jon Winkelried said he’s concerned that market investors are "apathetic to growing geopolitical and social unease."
“The level of complacency about where markets are today is pretty scary,” the TPG co-CEO said Wednesday.
“People are just sort of assuming it’s OK, that it is what it is, and I have to say that I’m a little bit concerned about it.”
Jonathan Beinner, the CIO of fixed income at Goldman Sachs Asset Mmanagement, said he’s "concerned" that people are underestimating the risk of market fluctuations at a time when companies are taking on more debt.