Seth Klarman Warns of Trump Market Euphoria


“In matters of style, swim with the current; in matters of principle, stand like a rock” – Thomas Jefferson

“The world, that understandable and lawful world, was slipping away” – William Golding, “Lord of the Flies”

“Do I really look like a guy with a plan? You know what I am? I’m a dog chasing cars. I wouldn’t know what to do with one if I caught it. You know, I just … do things” – The Joker, “The Dark Knight”

  • Seth Klarman, who usually maintains an extremely low profile, published an investor letter in late January which is garnering media interest, starting with The New York Times (letter obtained by Andrew Ross Sorkin)
    • “Despite my preference to stay out of the media… I’ve taken the view that each of us can be bystanders, or we can be upstanders. I choose upstander”
  • Trump cheerleaders on Wall Street are ignoring the real problems holding down wages while offering all the wrong solutions
  • Trump’s stimulus efforts could prove quite inflationary, which would likely shock investors
  • “Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers”
  • “Trump may be able to temporarily hold off the sweep of automation and globalization by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces. While they might be popular, the reason the US long ago abandoned protectionist trade policies is because they not only don’t work, they actually leave society worse off”
  • Concerned about swelling national debt that could undermine the economy’s growth over the long term
    • “The Trump tax cuts could drive government deficits considerably higher”
    • “The large 2001 Bush tax cuts, for example, fueled income inequality while triggering huge federal budget deficits. Rising interest rates alone would balloon the federal deficit, because interest payments on the massive outstanding government debt would skyrocket from today’s artificially low levels”
  • “The erratic tendencies and overconfidence in his own wisdom and judgment that Donald Trump has demonstrated to date are inconsistent with strong leadership and sound decision-making”
  • “The big picture for investors is this: Trump is high volatility, and investors generally abhor volatility and shun uncertainty … Not only is Trump shockingly unpredictable, he’s apparently deliberately so; he says it’s part of his plan”
  • “If things go wrong, we could find ourselves at the beginning of a lengthy decline in dollar hegemony, a rapid rise in interest rates and inflation, and global angst”

Source: The New York Times, Barrons, Business Insider, Vanity Fair
Image Source: Bloomberg


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