BAUPOST'S KLARMAN WARNS: 'The world has tilted off its axis, and we believe owners of capital should be increasingly worried'

Getty Images/ Kevork DjansezianSeth Klarman of Baupost Group.
  • Seth Klarman, the founder of The Baupost Group, a $US30 billion hedge fund, is concerned about growing nationalism in the US and abroad.
  • Klarman says investors should be worried.
  • He wrote that President Donald Trump “puts the U.S. at risk of both grave strategic miscalculation and reduced global influence” that 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.

The Baupost Group’s Seth Klarman dedicated two pages in his annual client letter to a scathing critique of President Donald 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 US 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 criticised Trump, and he holds no punches back in his most recent letter, writing that Trump “has displayed few of the character traits required in a US president and no aptitude for or interest in developing them.”

He added that Trump put the US “at risk of both grave strategic miscalculation and reduced global influence.” He continued:

“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 countries that hold US debt will react should they become concerned about the future of US democracy or question the country’s status as a haven, saying “no one is obliged to buy our bonds.”

Baupost, which manages about $US30 billion, gained in the mid-single digits in 2017 and held 36% of its portfolio in cash at year-end, according to the letter.

Klarman also said that good investing opportunities are harder to come by, and that Baupost “will have to work harder with less to show for it.”

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