Hedge fund impresario Paul Singer’s firm thinks the stock market is in for an even worse free fall than the monthlong horror show that ended March 23, when the S&P 500 dove 30%. In fact, next time the global market will lose 50%, according to Elliott Management.
“Our gut tells us that a 50% or deeper decline from the February top might be the ultimate path of global stock markets,” the hedge fund organization warned in a letter to clients.
If that happens, the S&P 500, now at 2,799 after recently recovering about half of its winter losses, would sink back to 1,663, around its 2013 level. The index’s low point in the financial crisis was 735 in December 2008.
Elliott said global stocks could tumble more—ultimately losing half of their value from February’s high—as the world is immersed in the deepest recession since the 1930s Great Depression, according to a letter sent to clients on Wednesday and reported by Reuters.
The latest drawdown ending in March “provided a heavy bookend to a dozen years of basically nonstop positive returns in global stocks, bonds, and real estate,“ the Elliott missive drolly observed. Elliott did not respond to a request for comment.
Singer, who launched Elliott in 1977, has a reputation for warning about economic dangers long before the rest of the financial community detects them. The financier has been warning about a significant market plunge since last summer.
Singer’s baleful prediction last year, when the economy was roaring, was based upon the huge amount of debt that corporations had amassed. He wondered if they could service it when a recession arrived. While he has made a fortune investing in distressed debt, he is usually very cautious in his investment choices and lately has loaded up on cash.
Elliott’s client letter said the firm had bought stocks and bonds recently, but pointedly added that any bullish sentiment was unwarranted. For one thing, Singer believes stock prices still are too high. “To us there does not appear to be a gilded cornucopia of shining bargains,” the letter said.
Indeed, the current bearish case for why stocks will sink anew is that earnings for the first quarter will disappoint, and then really freak investors out once the second quarter reports come in—all thanks to the record unemployment and cessation of business activity.
In relative terms, Singer’s performance of late is pretty decent. The Elliott International fund logged 2.2% in the first quarter and the Elliott Associates fund rose 1.6%. The average hedge fund lost roughly 8% percent during the year’s first three months, according to Hedge Fund Research. Elliott disclosed that it hedged its holdings with plays on certain stocks, interest rates, credit, and gold.