Klarman and Dalio Pessimistic in Davos

January 22, 2019 James Heinsman In the News

Seth Klarman, Baupost Group Owner. Photo courtesy Wikipedia.

Hedge Fund superstars, Ray Dalio and Seth Klarman, both expressed worry over the global economy during the annual World Economic Forum that meets each year in Davos, Switzerland.

Klarman’s dire warning was issued in a letter and caused a buzz at the prestigious conference. Called the next Warren Buffett by some, Klarman runs the Baupost Group, manager of $27 billion in assets, including some of the world’s wealthiest families.

Klarman stated that investors should take heed of rising global tension, increasing debt, and an enlarging political divide.

“It can’t be business as usual amid constant protests, riots, shutdowns and escalating social tensions,” Klarman wrote in the annual letter to investors.

He wrote that he did not understand investors’ reaction to the US reneging on its role as an international economic leader and President Trump’s incomprehensible use of the Twitter platform. The US president decided to forego the Davos meeting during the government shutdown now in its 33rd day with no end in sight.

“As the post-World War II international order continued to erode, the markets ignored the longer-term implications of a more isolated America, a world increasingly adrift and global leadership up for grabs,” he wrote.

“The seeds of the next major financial crisis (or the one after that) may well be found in today’s sovereign debt levels.”

Ray Dalio, the head of the world’s largest hedge fund, Bridgewater Associates, says he is worried that the next economic downturn might turn out to be quite serious due to several factors. Dalio was speaking at a panel discussion held in Davos.

A limited monetary policy toolbox, rising populist pressures, rising global trade tensions and more, have Dalio worried. He sees the present as similar to the conditions that existed during the late 1930s, the last half of the Great Depression.

Last year at Davos Dalio was criticized for his warning to fellow investors, saying they would feel “pretty stupid” for holding cash. But Dalio was proven correct as 2018 came to a close. Dalio’s Bridgwater Pure Alpha Strategy Fund gained 14.6% last year, while the average hedge fund fell 6.7% and the S&P 500 shrunk by 4.4%.

Baupost Group, Bridgewater Associates, Ray Dalio, Seth Klarman,

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