US value investor Seth Klarman has slammed the so-called Trump trade arguing euphoria has led to “perilously high valuations”.
The founder of $30bn hedge fund Baupost Group says “exuberant” investors are focussing on the benefits of tax cuts, but ignoring protectionist policies that the US has long abandoned because they do not work and leave society worse off, the New York Times reports.
Currently 30 per cent of his funds are held in cash.
“President Trump may be able to temporarily hold off the sweep of automation and globalisation by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces,” he wrote in a letter to investors.
Swelling national debt and inflationary policies are also listed as causes of concern, not to mention Trump’s “erratic tendencies and overconfidence in his own wisdom and judgment”.
Klarman writes: “Not only is Trump shockingly unpredictable, he’s apparently deliberately so; he says it’s part of his plan.”
Regarding tax, Klarman says cuts introduced by Bush in 2001 fuelled income inequality and triggered large federal budget deficits. “Rising interest rates alone would balloon the federal deficit,” Klarman adds.
Klarman is registered as an independent and has given money to both Republican and Democrat politicians.