Hedge fund Elliott sees hyperinflation, bubble and maybe worst market since WWII

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"Predictions of how much stock, bond and real estate prices are likely to fall, top to bottom, and whether a mild or severe recession is likely, miss the point. The point is that an extraordinary confluence of extremes and problems have made possible a set of outcomes that would be at or beyond the boundaries of the entire post-WWII period," hedge fund Elliott Management says.

In a letter to clients, Elliott said that while investors look for further easing of financial conditions with a Fed pivot, only a severe recession can cut inflation.

Elliott, founded by Paul Singer, says the "world is on the path to hyperinflation, which is the direct route to global societal collapse and civil or international strife. It is not baked, but that is the path that we are treading."

"Investors should not assume that they have 'seen everything' on account of experiencing the 1973 to 1974 bear market and oil embargo, the 1987 crash, the dot-com crash, or the 2007 to 2008 GFC," the fund said.

The surge in U.K. bond prices that sent the pound (FXB) plunging and yields surging demonstrates that real quantitative tightening is not possible, Elliott said.

"Over the decades we have made many unconventional (and a few frightening) predictions, and some of them have actually come to pass, albeit rarely in timely fashion," the fund said. "'We told you so' is rather over-ripe if the 'so' happens approximately ten years down the line."

"But the current situation contains so many frightening and seriously negative possibilities that it is difficult to avoid the conclusion that a seriously adverse unwind of the everything-bubble is 'baked.' The world's major central banks and political leaders are all trapped in a vise of their own creation."

"There is no single set of elements that signals stock market bottoms or major changes in direction," Elliott added. "As of this writing, the S&P 500 Index (SP500) (NYSEARCA:SPY) is down about 20% from the peak, and the NDX 100 Index (NDX:IND) (QQQ) is down around 30%."

"Those amounts just do not seem like a 'sufficient' re-rating of equities (DIA) (IWB) (IWM), given the numerous and unique elements of risk present in current markets, together with the serious mistakes in public policy that have led to the current mess."

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