Elliott Management Corp., the $24.1 billion hedge-fund firm run by Paul Singer, said recession is a possibility in the developed world, while the deflation that keeps central bankers awake at night is less likely than an asteroid hitting the earth.
“The fact remains that important structural reforms and pro-growth policies have been absent in the developed world,” Elliott wrote in a letter to investors, a copy of which was obtained by Bloomberg News. “Their economies are running on monetary extremism, which so far has not delivered the promised growth or jobs. We are not predicting a recession. We are just keeping it in the possibility mix.”
The New York-based firm, whose main fund gained 2.2 percent in the first quarter and 12 percent in 2013, is overseen by Singer, a 69-year old billionaire backer of Republican politicians and long-time opponent of quantitative easing. In the April 24 letter, Elliott criticized U.S. and European leaders, President Obama’s Affordable Health Care Act and Federal Reserve Chair Janet Yellen, for “actually acting like the leader of the so-called free world.”
“The real power in the U.S. does not reside with the President, who gallivants around the globe leaving snickers, whispers and head-shaking in his wake,” according to the letter. “The real power lies with a Ph.D toting economist named Janet Yellen.”
The firm declined to comment on the letter.
Yellen, who took over from Ben S. Bernanke this year, said this month the Fed has to “watch carefully” to see if inflation picks up as the central bank projects -- and hopes -- during the next few years. She suggested the Fed would keep short-term interest rates near zero as it seeks to avoid Japan’s experience of a prolonged period of falling prices and wages.
Elliott said central bank printing of money will prevent any deflaton. Instead, the firm cannot rule out a renewed recession or very slow growth.
“We occasionally worry about asteroids hitting the earth, or a major solar storm that could bring down the power grid for a long period of time and result in the deaths of millions of people,” according to the letter. “Either scenario is more likely to happen than the deflation that evidently keeps the world’s central bankers up nights.”
Repeated rounds of quantitative easing could trigger significant inflation causing “explosive upside” in the price of gold, Elliott said.
Singer is a big supporter of Republican senatorial candidates, including Tom Cotton of Arkansas, Dan Sullivan of Alaska and John Cornyn of Texas, according to OpenSecrets.org. He’s also been a backer of American Unity PAC, which supports Republican candidates who are proponents of gay marriage.
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