Singer: Look for Another Market Slide, to 50% Below Peak

Deep recession will deliver stocks a second tumble, hedge fund heavyweight says.

Hedge fund impresario Paul Singer’s firm thinks the stock market is in for an even worse free fall than the monthlong horror show that ended March 23, when the S&P 500 dove 30%. In fact, next time the global market will lose 50%, according to Elliott Management.

“Our gut tells us that a 50% or deeper decline from the February top might be the ultimate path of global stock markets,” the hedge fund organization warned in a letter to clients.

If that happens, the S&P 500, now at 2,799 after recently recovering about half of its winter losses, would sink back to 1,663, around its 2013 level. The index’s low point in the financial crisis was 735 in December 2008.

Elliott said global stocks could tumble more—ultimately losing half of their value from February’s high—as the world is immersed in the deepest recession since the 1930s Great Depression, according to a letter sent to clients on Wednesday and reported by Reuters.

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The latest drawdown ending in March “provided a heavy bookend to a dozen years of basically nonstop positive returns in global stocks, bonds, and real estate,“ the Elliott missive drolly observed. Elliott did not respond to a request for comment.

Singer, who launched Elliott in 1977, has a reputation for warning about economic dangers long before the rest of the financial community detects them. The financier has been warning about a significant market plunge since last summer.

Singer’s baleful prediction last year, when the economy was roaring, was based upon the huge amount of debt that corporations had amassed. He wondered if they could service it when a recession arrived. While he has made a fortune investing in distressed debt, he is usually very cautious in his investment choices and lately has loaded up on cash.

Elliott’s client letter said the firm had bought stocks and bonds recently, but pointedly added that any bullish sentiment was unwarranted. For one thing, Singer believes stock prices still are too high. “To us there does not appear to be a gilded cornucopia of shining bargains,” the letter said.

Indeed, the current bearish case for why stocks will sink anew is that earnings for the first quarter will disappoint, and then really freak investors out once the second quarter reports come in—all thanks to the record unemployment and cessation of business activity.

In relative terms, Singer’s performance of late is pretty decent. The Elliott International fund logged 2.2% in the first quarter and the Elliott Associates fund rose 1.6%. The average hedge fund lost roughly 8% percent during the year’s first three months, according to Hedge Fund Research. Elliott disclosed that it hedged its holdings with plays on certain stocks, interest rates, credit, and gold.

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Kentucky Governor Signs Measure to Revamp Local Pension Boards

Legislation creates new panel of trustees for County Employees Retirement System.

Kentucky Gov. Andy Beshear recently signed legislation creating a separate nine-member board of trustees for the County Employees Retirement System (CERS).

The measure establishes the Kentucky Public Pensions Authority, which would oversee the new board of trustees for CERS. The new pensions authority would also oversee a nine-member board of trustees to manage the Kentucky Employees Retirement System (KERS) and the State Police Retirement System (SPRS).

Another bill Beshear signed temporarily freezes employer contribution rates and resets the amortization period for KERS, CERS, and SPRS to a new 30-year span.

The pensions authority will hire an actuary for both boards and provide day-to-day services such as benefit counseling, legal services, and benefit payments. An executive director will be the chief administrative officer for the pension authority, CERS and the Kentucky Retirement System (KRS). Four members of the CERS board and four from the KRS board will review personnel and administrative expenses for the Kentucky Public Pensions Authority.

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A provision in the bill also prohibits the governor from reorganizing, replacing, amending, or abolishing the KRS board of trustees. While that provision takes effect immediately, a CERS board of trustees is not required to be in place until April 2021.

According to the Kentucky League of Cities, which was a strong proponent of the board change, CERS accounts for 76% of the pension assets managed by the KRS and 64% of the membership, but has only 35% representation on the KRS board of trustees and has no representative on the KRS investment committee.

Under the new law, both the CERS board and KRS board will have decision-making authority. The CERS board will be comprised of three representatives elected by members, two of whom will represent non-hazardous members, with one representing hazardous duty members.

The remaining six members will be appointed from lists provided to the governor by the Kentucky League of Cities, the Kentucky Association of Counties, and the Kentucky School Boards Association. The appointed members will be required to be experts in their field, with at least 10 years of experience in either investments or retirement management.

The KRS board will also have three representatives elected by members—two from KERS and one from SPRS—and six gubernatorial appointees from the current KRS board. The bill requires Kentucky Senate confirmation for all appointees.

In March, KRS Executive Director David Eager told CIO that board overhaul “increases the complexity of managing the five main retirement and health care plans.” He said that, under the law, KRS will be required to serve three boards, not one, which he said could mean preparing for more than 70 board and committee meetings compared with just 30 today.

“Our costs will no doubt increase, which will ultimately have to be borne by taxpayers,” he said.

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