$80 Billion Hedge Fund Warns of AI FOGO: "Fear Of Getting Oblieterated

"Fear of getting obliterated" is a phrase that concentrates the mind. And that is the message coming from Elliott Investment Management, a large US hedge fund.

They cite all the AI warning signs that have been floated for the past year: from unrealizable projections, to slower than expected corporate uptake to circular investing. And today's US midterm elections may even add a popular underscore to the fundamental financial concerns. JL

Peter Rudegeair reports in the Wall Street Journal:

Elliott Investment Management compared the current state of the markets, laden with debt-fueled risk-taking and bubbling with hype over new technologies, to the Roaring ‘20s that preceded the Great Depression. “At present, virtually every alarm bell warning of a substantial bear market ahead is ringing,” the $80 billion hedge-fund firm wrote in an investor letter. Its October message highlighted risks building in U.S. budget deficits, persistent inflation, private-credit portfolios and artificial-intelligence hype. And it warned about market distortions caused by factors it said were more akin to gambling than investing.  Regarding AI, Elliott warned about circular investments between AI model companies and makers of AI infrastructure, debt-financed capital spending and a burgeoning anti-AI movement. The market impact from challenges to the pricing of AI products or diminished expectations about the AI build-out “could be historic.” 

Paul Singer’s Elliott Investment Management compared the current state of the markets, laden with debt-fueled risk-taking and bubbling with hype over new technologies, to the Roaring ‘20s that preceded the Great Depression.  

“At present, virtually every alarm bell warning of a substantial bear market ahead is ringing,” the $80 billion hedge-fund firm wrote in an October investor letter reviewed by The Wall Street Journal. 

While Elliott is prepping for potentially historic upheaval, its performance is lagging behind the broader hedge-fund industry.

Elliott’s returns were flat in the three months ending Sept. 30, leaving its gains the first nine months of 2026 at a little under 2%, according to the letter. That trails a composite hedge-fund index compiled by research firm PivotalPath, as well as the nearly 13% total return of the S&P 500 and the nearly 3% gains in an index of short-term Treasury bills over the same period.

Elliott’s quarterly letters are known for their doom-and-gloom commentary on the dominant themes of the day.

Its October message highlighted risks building in U.S. budget deficits, persistent inflation, private-credit portfolios and artificial-intelligence hype. And it warned about market distortions caused by factors it said were more akin to gambling than investing, including traders using zero-day options and betting on meme stocks.

Singer and Jonathan Pollock, the firm’s two chief executives and chief investment officers, run one of the hedge-fund industry’s largest pools of capital, deployed across strategies spanning activist campaigns, buyouts, distressed-debt investing and commodities trading. It avoids swinging for the fences, preferring to deliver a more consistent streak of base hits.

Currently, they wrote, they are focused on preserving their capital and being ready to strike if the market runs into turmoil.

“Over Elliott’s five-decade existence, fallow periods have existed, but these have historically been accompanied by market turbulence and followed by periods of rare opportunities,” the letter said. “Our goal is to be well positioned—protected on the downside, and with capital to deploy into the bargains—when the tide turns again.”

In the third quarter, Elliott’s unprofitable sectors included distressed debt and portfolio hedges related to gold, currencies, stocks and interest rates. Its profitable sectors included commodities, arbitrage and portfolio hedges related to credit. 

The firm sees opportunities in activist investing in healthcare companies, producing energy properties and, eventually, buying from forced sellers in dislocated credit markets. Its recent activist positions include stakes in PepsiCo and Synopsys, a chip-design software maker.

Jesse Cohn, one of Elliott’s managing partners, took to X last month to lament the effect that retail, high-frequency and other traders are having on short-term price discovery.

“The stock market feels different right now because it is different. Winners keep winning, losers get pounded, earnings reactions are increasingly unpredictable and larger,” Cohn said in a post on X. 

Regarding AI, Elliott warned about circular investments between AI model companies and makers of AI infrastructure, debt-financed capital spending and a burgeoning anti-AI movement. Elliott wrote that the market impact from any challenges to the pricing of AI products or diminished expectations about the AI build-out “could be historic, or at least as severe as any bear market in the last few decades.” 

“So many factors have lined up to cause this great boom that it might take disruption in only one or two of them to shift this momentum into reverse, leading to a cascading, self-reinforcing unwind of this bull market and an abrupt change from FOMO to FOGO (fear of getting obliterated),” the letter said.