Elliott and Ackman warn the stock market has become a casino
Two of Wall Street's best-known hedge fund investors warned this week that the stock market has started to look like a casino.
Elliott Investment Management, the $80bn firm run by Paul Singer and Jonathan Pollock, told investors in an October letter that "virtually every alarm bell warning of a substantial bear market ahead is ringing". The letter was first reported by the Wall Street Journal; free summaries from Newsmax and Benzinga set out its main points.
Elliott compares today's markets, full of borrowed money and excitement about new technology, to the Roaring Twenties before the Great Depression. Its list of worries includes widening US budget deficits, stubborn inflation, private credit and the AI boom. On AI it singles out circular financing, in which suppliers of chips and data centres invest in AI developers that then spend the money on those suppliers' products. If AI pricing or the expected build-out disappoints, the letter says, the damage "could be historic, or at least as severe as any bear market in the last few decades".
It also coins a phrase. So many forces have lined up behind the rally, Elliott argues, that disruption to "only one or two of them" could set off "a cascading, self-reinforcing unwind of this bull market and an abrupt change from FOMO to FOGO (fear of getting obliterated)".
The caution has cost it. Elliott's returns were flat in the third quarter and slightly under 2 per cent for the first nine months of the year, against nearly 13 per cent for the S&P 500 and nearly 3 per cent for short-term Treasury bills. The firm says it is keeping cash to buy from forced sellers when "the tide turns".
Bill Ackman made a similar point on CNBC on Tuesday. "Every number of days, I feel like markets are broken," the Pershing Square founder said. "We're back to the casino-type markets." He blamed one-day leveraged products, perpetual futures and sports betting for encouraging people to treat stocks as a way to get rich quick. Elliott, too, likens zero-day options and meme-stock trading to gambling.
Ackman, unlike Elliott, says the chaos is making him money. Pershing bought Microsoft after this year's sell-off in software stocks, and has bought other big technology companies after sharp falls. "It's good for us long term," he said. "I don't think it's good for the country."
Neither manager is saying when the turn will come. Warnings like these are common late in a bull market, and they are not always followed by a crash.
_Image: Paul Singer, founder of Elliott, at the World Economic Forum. Photo: World Economic Forum, Wikimedia Commons.jpg), CC BY-SA 2.0. Cropped._
