Tags: paul singer | bonds | safe haven | investors

Billionaire Paul Singer: Sell Your Long-Term Bonds, 'These Are Not Safe Havens'

Billionaire Paul Singer: Sell Your Long-Term Bonds, 'These Are Not Safe Havens'

(Dollar Photo Club)

By    |   Thursday, 22 September 2016 08:14 AM






Paul Singer, the billionaire founder of investment firm Elliott Management, is warning that he senses it is now "a very dangerous time" in global markets.

As a result, savvy investors must prepare and brace for the worst.


"The term 'safe haven' applied to G-7 bonds is just wrong," he recently told CNBC. "These are not safe havens. In fact, there's a tremendous amount of risk in owning 10- and 20- and 30-year bonds at these rates."

"Sell your 30-year bonds," he said. "Sell long-term bonds is my outright recommendation," he said.

He also cautioned that if bond and stock prices continue to fall simultaneously, as they have on occasion in recent weeks, that "not only would put quite a dent in a number of institutional portfolios." It also could hit leveraged strategies known as "risk parity" that are run by some major hedge funds, CNBC reported.

"If that is triggered, I think central banks are in a tough place. And I think governments are in a tough place," Singer said.

Singer would prefer to see fiscal policies step up to stimulate growth in ways that monetary policy no longer can — even if that means explicit coordination between, say, the Fed and the White House or Congress.

"Officials around the globe are not picking up the ball," he said. "A further result of all this is to exacerbate inequality and to create the conditions for social restiveness."

"You can't just raise interest rates without doing something else," he said. "I think central bank independence is overrated," Singer said. "I'm not saying immediately start legislation to put central banks under the thumb of governments, because we know the danger of that. But … that's what they're planning to do anyway, meaning, printing money, debasing the currency," he said.

"At some point, perhaps soon … inflation may blow through these targets and surprise everyone,"

But he doesn’t expect another market crash. "There will be no credit collapse, in my view," he added, expecting that policymakers would ultimately ward off something like that. "But there are plenty of historical episodes where inflation, serious inflation, coexists with poor economic conditions."

And there are other storm clouds on the financial horizon for investors. The changing relationship between bonds and stocks may be a sign of trouble ahead, The Wall Street Journal warns.

“A generation of traders have grown up with the idea that stock prices and bond yields tend to rise and fall together, as what is good for stocks is bad for bonds (pushing the price down and yield up), and vice versa,” the Journal explained.

“This summer, the relationship seems to have broken down in the U.S. Share prices and bond yields moved in the same direction in just 11 of the past 30 trading days, close to the lowest since the start of 2007,” the Journal reported.

Since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy, the Journal reported. Such a trend has tended to coincide with times of deep discontent in markets, notably the 2013 “taper tantrum,” when bond yields briefly surged after Federal Reserve officials signaled they would soon end stimulus.

"It could be that this summer’s price moves were just noise while traders were on the beach, and stock prices and bond yields will start moving together again soon. But keep an eye on those correlations, as shifts often mean tough times ahead for investors," the Journal warned.


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"Sell your 30-year bonds," Singer said. "Sell long-term bonds is my outright recommendation," he said.
paul singer, bonds, safe haven, investors
Thursday, 22 September 2016 08:14 AM
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