- A stark warning. Paul Singer’s Elliott Investment Management told investors in an October letter reviewed by The Wall Street Journal that “virtually every alarm bell warning of a substantial bear market ahead is ringing,” comparing today’s debt-fueled, hype-driven markets to the Roaring ’20s that preceded the Great Depression.
- FOMO could turn into FOGO. The $80 billion firm warned that a disruption in just one or two of the factors behind the boom could cause “a cascading, self-reinforcing unwind of this bull market and an abrupt change from FOMO to FOGO (fear of getting obliterated).”
- AI is a key risk. Elliott flagged circular investments between AI model companies and infrastructure makers, debt-financed capital spending and a growing anti-AI movement, saying the market impact of any challenge to AI pricing or expectations “could be historic.” It also cited US budget deficits, persistent inflation, private credit, zero-day options and meme stocks.
- Performance is lagging. Elliott’s returns were flat in the three months ended Sept. 30, leaving its nine-month gain at a little under 2%, behind a PivotalPath hedge-fund index, the S&P 500’s nearly 13% total return and nearly 3% from short-term Treasury bills.
What Happened?
Elliott’s quarterly letters are known for gloomy commentary, but this one goes further, warning of potentially historic upheaval. Singer and co-CEO Jonathan Pollock wrote that the firm is focused on preserving capital and being ready to buy if markets fall into turmoil. In the third quarter, distressed debt and hedges tied to gold, currencies, stocks and rates lost money, while commodities, arbitrage and credit hedges were profitable, according to the WSJ.
Why It Matters?
The warning comes as a chip selloff has pushed the Nasdaq 100 into a correction, according to CoinDesk, adding weight to concerns about stretched AI valuations. When one of the world’s largest hedge funds positions defensively and plans to buy from forced sellers in dislocated credit markets, it signals that sophisticated investors see rising risk in both stocks and private credit.
What’s Next?
Elliott said it sees opportunities in activism at healthcare companies, energy-producing properties and, eventually, buying from forced sellers in dislocated credit markets. Its recent activist stakes include PepsiCo and Synopsys. Watch whether further AI-led selling or credit stress creates the bargains Elliott is waiting for.
