Why Elliott’s Paul Singer Is Worried about a Market Slump

Hedge funds and investment banks warn of a downturn

Many hedge fund managers and investment banks have been warning about an upcoming slowdown or a downright recession. While Goldman Sachs (GS) warns about an impending market crash, Citigroup (C) is talking about a recession, and Morgan Stanley (MS) has set the alarm bells ringing about the devastating impact on the global economy if the trade war talks between the US and China fail.

Paul Singer is concerned about a global slump

As reported by Bloomberg, Elliott Management’s Paul Singer is the latest to warn about a global market slump ahead. While speaking during a panel at the Aspen Ideas Festival, he said, “The global financial system is very much toward the risky end of the spectrum.” He said that global debt and derivatives are at an all-time high.

Singer added that while he can’t predict the timing, he’s estimated that we could see a market correction of 30%–40% when a downturn hits. He’s also been a critic of the Federal Reserve’s policies. Yesterday, he maintained that the market meltdown in late 2018 was the first hint of a pending slump and indicated that the Fed and other central banks were the victims of their own policies. He added that they should try to restore the soundness of money.

Trade war concerns

Regarding the trade war, Singer said that the dispute is about much more than just trade. Optimism that the US and China would resolve the stalemate in their trade talks coupled with a dovish Fed helped propel the S&P 500 (SPY) to record highs last week. US semiconductor stocks (SMH) are among the stocks most affected by trade war concerns. Advanced Micro Devices (AMD), NVIDIA (NVDA), Broadcom (AVGO), Qualcomm (QCOM), and Intel (INTC) have risen 5.3%, 11.8%, 10.9%, 9.6%, and 6.4%, respectively, this month on Fed rate cut hopes and trade talk optimism. Year-to-date, AMD, NVDA, AVGO, QCOM, and INTC are up 56.3%, 13.6%, 10.7%, 28.6%, and 1.1%, respectively.