$80 billion hedge fund warns: bear market risks are heating up, AI boom may trigger chain sell-offs

November 3 - Elliott Investment Management, a hedge fund managing approximately $80 billion, warned in its October letter to investors that nearly all alarms signaling a major bear market are currently sounding. U.S. fiscal deficits, persistent inflation, private credit risks, and the AI investment boom are collectively exacerbating market fragility.

Elliott believes that debt-financed investments, the AI infrastructure arms race, and speculative trading in the current market are recreating some of the dangerous characteristics seen before the Great Depression of the 1920s. If AI product pricing comes under pressure, or if the market lowers its expectations for AI infrastructure buildout, the impact could be historic, potentially reaching the level of major bear markets seen in past decades.

The firm also warned that market sentiment could rapidly shift from FOMO (fear of missing out on gains) to FOGO (fear of getting obliterated), triggering a cascading wave of bull market liquidations. Elliott stated that its primary task at present is to protect capital and prepare for investment opportunities following a sharp market correction.

However, the fund's return in the first three quarters of this year was slightly below 2%, significantly lagging the S&P 500 index, which rose nearly 13% over the same period.