LAS VEGAS — Investors pouring their money into long-term government bonds are deluding themselves into thinking they're getting safety against economic turmoil, hedge fund titan Paul Singer said.
In market parlance, strong demand for U.S. debt is generally considered a "safe-haven" trade because of the unlikelihood that the government will ever default on its obligations.
Singer, who is the founder, CEO and co-chief investment officer at Elliott Management, called this notion "complete baloney" and predicted that the long bond could suffer a fate similar to that of big U.S. banks during the subprime collapse.
"These bonds are not safe havens," he said during an one-on-one discussion at the Skybridge Alternatives conference. Investors "are giving money to people who have shown they will continue printing willy-nilly to solve every problem."
Giving the government money for 30 years at near interest rates hovering around 3 percent"is not a very good idea" Singer said, applying the same warnings to debt issued in Europe, the UK and Japan.
Singer's legend in the hedge fund business comes from the consistent positive returns he has posted in turning $1 million in seed money into a $20 billion business. Elliott earned clients about 4 percent during 2011 in an otherwise downbeat year for the industry.
Known for his strident, activist Republican politics, he has been a frequent critic both of the Federal Reserve and President Obama.
He said the central bank has shown over the past decade little understanding of economic forces, particularly those that propelled both the dotcom and subprime mortgage bubbles.
While he said the the central bank's implementation of quantitative easing was a necessary fix for an economy in crisis, he said QE is an extreme measure now being used recklessly.
The result, he predicted, will be inflation, which is the primary enemy of fixed-income investing. Long bonds are not priced for the inflation that money-printing will produce, he said.
"They feel, 'Why worry about inflation?'" Singer said. "My concern as a citizen and as a money manager is, oh my God, at what point does a 'whoa' moment happen to these people who own $30 trillion fixed income instruments?"