Sunday, August 3, 2014

Argentina, an Electronmagnetic Pulse and the U.S. Economy - From Paul Singer (Elliott Management)

Paul Singer
Last week Paul Singer, the high profile founder of investment firm Elliott Management, shared the following views in his quarterly letter:  
  • On Elliott’s actions against the Republic of Argentina - “it is difficult to estimate the likelihood of a near-term resolution of the debt dispute, despite Argentina’s losing on every one of its flawed and desperate arguments in the courts of law to which it agreed to submit.”
  • On an electromagnetic pulse (EMP) - “EMP fries electronic devices, including parts of electric grids. In 1859, a particularly strong solar disturbance (the “Carrington Event”) caused disruption to the nascent telegraph network. It happened again with similar disruptions in 1921, before our modern power grid came into existence. A NASA studyconcluded these events have typically occurred around once per century. A repeat of the Carrington Event today would cause a massive disruption to the electric grid, possibly shutting it down entirely for months or longer, with unimaginable consequences.”
  • On the U.S. Federal Reserve and Employment - “We continue watching with amazement the Fed’s magic act as it attempts to use quantitative easing and zero interest rate policy (QE and ZIRP) to create apparently healthy economic growth in the face of very poorly designed political, economic and fiscal policies” and “those [employment] numbers are significantly distorted and paint an overly optimistic picture. For starters, workers are not counted as unemployed after they stop looking for work. Retirees aside, millions of Americans have exited the job market in discouragement after extended periods of unemployment following the financial crisis, thus distorting the statistics.”
MY TAKE
  • Regarding Argentina - As the government moves toward its second default in 13 years, commentary has focused on the greed of investors and the corruption and poor management by the government.  Unfortunately, the big losers are the citizens of Argentina.
  • Regarding an electromagnetic pulse - It is likely that some government and business leaders are studying the problem.  Plans to prepare for or address the impact of on an EMP are less clear.
  • Regarding the U.S. Fed and employment – asset prices for stocks and real estate have improved in recent years, but the positive impact to the broader economy have been more muted.  

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