KLARMAN: MORE SCARED NOW THAN HE’S EVER BEEN
There are a handful of investors who really make my ears perk up when they speak. Seth Klarman at hedge fund powerhouse Baupost is one of those investors. Obviously, Klarman is a reader of TPC, seeing as how negative he has become in recent weeks. In all seriousness though, the hedge fund legend is very negative. Speaking at yesterday’s annual CFA Institute conference Klarman said:
“I’m more worried about the world broadly than I’ve ever been in my whole career.”
Klarman believes the government stimulus has created an artificial environment which will ultimately result in massive inflation (Klarman obviously doesn’t read TPC). He owns puts on treasuries as protection. In addition, Baupost has 30% of its $22B fund in cash. In the near-term Klarman finds little value in the equity markets following the massive 15 month run we’ve seen. His long-term outlook for the market is equally pessimistic:
“Given the recent run-up, I’d be worried that we’ll have another 10 years of zero returns”
Source: Reuters
Klarman is one of the best, if not the best. For my money Margin of Safety is one of the few “must reads” in investing. His view on inflation runs counter to mine, but I don’t follow him for his monetary views. I follow him for his incredible insights into equity valuation. If he sees little to no value in the current market and the possibility of another lost decade, a view notably close to Grantham’s, every investor better take notice. It’s also interesting that he’s offering such a broad macro view on the global economy. I’m fairly sure this is unusual for him. I’m glad my cash is at a 3yr high. And right at the same time fund managers are back at all time lows.
Hi Mountaineer,
I believe it is most appropriate to mention Jeremy Grantham in this context.
His 7 year asset class forecasts are really something I value the most from practical perspective. I use it as a broader overvalued/undervalued measure, and i really believe today stocks are even this week still generally overvalued. (S&P 500 worth less than 1000). My position is at 50% stocks 50% cash, today.
Inflation is perhaps the most difficult. Inflation is here, as all the money was already created (stimulus 1.0, 2.0 … x.0) and will not be destroyed. This is Austrian approach to description of inflation. Now, how this will demonstrate itself? What is not clear yet, is where the money actually will go, because now the money is kind a buried at the back yard. But it will find its way…..
Yes we are now in a deflationary environment, but please read John Hussman how massive inflation is already built in the cake. However, until deflationary forces work thru the system, inflationary forces will not be prevalent, most likely in the second half of decade when Fed unwinds asset purchases. This is also consistent with Prechters views on timing.
“Klarman believes the government stimulus has created an artificial environment which will ULTIMATELY result in massive inflation”