Hedge Fund Star Paul Singer: 'US Stock Market Frothy'

Tuesday, 05 Aug 2014 07:23 AM

By Dan Weil

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Many prominent financial market participants have warned that various markets are close to or in a bubble. You can add hedge fund star Paul Singer, CEO of Elliott Management, to the list.

"By all measures, the U.S. stock market is currently frothy," he wrote in a recent letter to investors obtained by CNBC.com.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks

The S&P 500 index had a trailing price-earnings ratio of 19.5 at the end of last week, up from 18.6 a year ago, according to Birinyi Associates.

Singer maintains that central banks are creating asset bubbles with their massive easing programs.

"Investors are pushing out the risk curve and once again piling on leverage to juice returns, while short-term interest rates in Europe are actually negative," he said. "Although the levitation of financial assets has not yet spread to gold, we will grit our collective teeth on that score and await either 'asset price justice' or the 'end times,' whichever comes first."

Rising inflation may tear markets asunder, Singer said.

The end result may be "a scramble by citizens and investors to preserve value on a foundation of shifting sand, together with ... real class warfare."

Renowned mutual fund manager John Hussman, president of Hussman Financial Trust, is another bubble believer. "Make no mistake: this is an equity bubble, and a highly advanced one," he writes in his weekly market commentary.

"On the most historically reliable measures, it is easily beyond 1972 and 1987, beyond 1929 and 2007, and is now within about 15 percent of the 2000 extreme."

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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