Baupost’s Seth Klarman.Getty Images/ Kevork Djansezian
- Seth Klarman, founder of $30 billion hedge fund The Baupost Group, is concerned about growing nationalism in the US and abroad.
- Klarman says investors should be worried.
- President Donald Trump “puts the U.S. at risk of both grave strategic miscalculation and reduced global influence,” he wrote, which could undermine markets.
The founder of one of the world’s largest hedge funds says the global political climate poses a grave threat to democracy and international markets.
Baupost Group’s Seth Klarman dedicated two pages in his annual client letter to a scathing critique of Trump, global nationalism and concerns about the rise of Russia, China and North Korea, saying all could forebode market upheaval.
“Xenophobia, racism, and anti-Semitism are literally on the march,” Klarman wrote in the year-end letter, a copy of which was reviewed by Business Insider.
He cited Trump’s election win, Brexit, the Scottish referendum for independence, Catalonia’s crisis with Spain, and two Italian regions’ vote for greater autonomy from Rome. He also cited concerns about a demise of American democracy, with polls showing “a disturbing number of young people with anti-democratic views.”
He added: “From Charlottesville to Poland, neo-Nazis, while still limited in number, are resurgent. Clearly the world has tilted off its axis, and we believe owners of capital should be increasingly worried. Amidst the tsunami of growing discontent and upheaval, soaring share prices and subdued volatility seem especially peculiar.”
Bernie Sanders’ rise in the 2016 U.S. election should also alarm investors, Klarman said, because it shows that a significant number of Americans have “moved away from the center, an ominous trend for an already divided and increasingly angry nation.”
Klarman has long criticized Trump and he holds no punches back in his most recent letter: Trump “has displayed few of the character traits required in a US president and no aptitude for or interest in developing them,” he wrote.
He added:
Trump “puts the U.S. at risk of both grave strategic miscalculation and reduced global influence. Indeed, the loss (or sever diminution) of what had been America’s unquestioned position of leadership on the world stage impairs our ability to influence world events in a manner that promotes stability and democracy. This is bad for the U.S. and could also undermine markets in the long run.”
Klarman is also worried about how other countries, which hold U.S. debt, will react should they become concerned about the future of US democracy or question the country’s status as a safe haven, saying that “no one is obliged to buy our bonds.”
Baupost, which manages about $30 billion, gained in the mid-single digits in 2017, and held 36% of its portfolio in cash as of year end, according to the letter.
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