Citadel’s Griffin Warns ‘West Faces Existential Problems’

As US equities continued their drawdown on Monday afternoon, tumbling ever-closer to the 4,000 “max pain” threshold that BofA’s Michael Hartnett warned could trigger an even more punishing selloff in stocks, Citadel’s Ken Griffin took the stage at the Milken conference in Los Angeles, where he shared some of his own apocalyptic warnings.

Speaking during an interview with Bloomberg’s Erik Schatzker, Griffin warned that investors are now facing the period of highest market uncertainty since the global financial crisis. The number of risk factors facing markets are myriad – chief among them the possibility that inflation could become “unanchored”, eventually becoming self-reinforcing, which would create serious problems for the Fed and its efforts to “expeditiously” tighten monetary policy.

Should inflation ease to just 4% YoY by the end of 2022, then the Fed would be able to “relax”, Griffin said. But if price pressures remain stubbornly persistent, then policymakers are going to need to hit the breaks “hard”, which will likely cause a recession.

After such a long bull market with relatively few blowups, the “nature of the issues are ones that few of us have had to grapple with.”

Of course, inflation isn’t the only threat to market stability. Investors are also confronting a range of other issues, from the ongoing impact of COVID, which has prompted the lockdowns in China that are hamstringing the outlook for global growth (and creating additional kinks in the global supply chains), along with the war in Ukraine, which appears to have reached a “stalemate”.

With so many factors undermining stability, Griffin warned that investors will need to be “quick” and “nimble” to take advantage of trading opportunities. He added that the next couple of months will be “incredibly telling” and that we are in a “tough time” to deploy capital, as the overall “pie” has been shrinking.

When it comes to America’s energy future, Griffin pointed out that years of under-investment have hamstrung the American and European energy sectors.

Indeed, the current situation is a “disaster” for the West, which is facing “existential” problems.

In particular, he blamed the Europeans’ embrace of green energy and their dependence on Russia for contributing to the current malaise.

Later in the talk, Griffin shared an update on Citadel’s involvement in the crypto space. Presently, the “great hot spot” of debate within Citadel is crypto. Griffin added that the value of digital assets is “in the eye of the beholder,” comparing it to how art is assessed and collected.

Right now, Citadel is getting involved in crypto, but it’s proceeding with caution. Griffin said it’s hard to build market-making capabilities “with rigor.” The goal is to bring “best practices” the firm carries into the crypto markets.

Moving on from markets, Griffin also dipped his toe into the realm of politics, with a particular focus on the state of Florida, which has been the setting for two major confrontations lately: a law barring discussion of sexuality in the classroom, and Gov. Ron DeSantis’ push to strip Disney World Resort of its special tax status. Griffin said he had no issue with the former, but chided DeSantis on the latter, claiming it could be perceived as “retaliation”.

He also commented on the Hunter Biden laptop story (calling social-media censorship of the story “horrifying”) and offered some encouraging words about Elon Musk’s campaign to take Twitter private.

GRIFFIN: FIRST-GRADERS NOT COGNITIVELY THINKING ABOUT SEXUALITY

GRIFFIN: HUNTER BIDEN LATOP STORY DISAPPEARING `TERRIFYING’

GRIFFIN: SOCIAL NETWORKS HAVE ERODED FREE SPEECH

GRIFFIN: MOST IMPORTANT PART OF MUSK-TWITTER IS FREE SPEECH

GRIFFIN: DESANTIS HAS DONE A LOT OF THINGS RIGHT

GRIFFIN: NO ISSUES WITH LEGISLATION PASSED IN FLORIDA

Watch the full interview below (click the image for link to Vimeo, fwd to around 31:00 for the start of the Griffin interview)

In other Citadel news, Bloomberg reported shortly before Griffin took the stage that Citadel had scored a 7.5% return for April in its main hedge fund while most investors saw their returns sink along with the broader stock market. But it wasn’t just the flagship fund that posted market-beating returns.

Ken Griffin’s hedge funds crushed the market in April during a brutal sell-off and extreme volatility.

Citadel’s multistrategy flagship fund Wellington rallied 7.5% last month and up 12.7% YTD, according to a person familiar with the returns.https://t.co/fq5yNiaQic pic.twitter.com/XONJpL3Mym

— Yun Li (@YunLi626) May 2, 2022

It looks like David Einhorn’s Greenlight Capital wasn’t the only fund that booked positive returns last month.