"It is also not clear whether stock prices, which are still on a tear and at all-time nominal highs, are at these levels because of optimistic economic prospects, QE, or the beginnings of a loss of confidence in paper money causing a shifting of capital out of fixed income and into purportedly 'real' assets," Singer added.
"However, the fragility of capital markets, so reliant on zero percent interest rates and QE Infinity for their equilibrium, is clearer. The markets' ability to withstand any adversity is highly questionable, and it appears to us that the Fed is basically paralyzed (though they would probably call it 'focused and determined') and afraid (perhaps they would say 'prudently risk-averse') to reduce, much less eliminate, its bond-buying.
"In this environment, plain-vanilla ownership of stocks or bonds represents a highly conjectural bet on government-manipulated markets."
Singer noted several investment positions he likes in the letter. Among them was the Hess Corporation, which he Singer wrote "continues to trade substantially below what we believe is its intrinsic value."
"We believe the market placed little to no value on this business prior to the sale, which underscores the significant potential additional value that can be unlocked as the new board begins to refocus the company," Singer added. "We modestly increased our position during the quarter, and we look forward to the next phase of the corporate restructuring."
Another was gold. "We continue to add to our long gold option positions, which are aimed at having limited downside risk with large upside potential in the event gold has a big upward move," Singer wrote. "Since we think that the fundamentals are uniquely positive for gold (even though most investors would disagree), we think of the current situation as fundamentally very attractive, with the real value as yet to be recognized in the markets."
Singer said that Elliott was generally adding U.S. and European activist equity and event-driven positions.
"These positions come in different flavors, but chief among the qualities that make them attractive to us are (1) that they offer the ability to exercise substantial control over one's destiny by one's own efforts, and (2) that their results are less subject to the influence of governmental manipulations than if they were passive outright long positions in equities or debt," the letter said.
A spokesman for Elliott did not immediately respond to a request for further comment.