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Seth A. Klarman is the most successful and influential investor you have
probably never heard of…and he fears that investors, charmed by talk of pro-growth policies, are not considering the full ramifications. Perhaps that’s why a private letter he wrote to his investors a little over two weeks ago about investing during the age of President Trump…has quietly become the most sought-after reading material on Wall Street…[Here it is, in part!]
The comments above and below are excerpts from an article by (NYTimes.com) which has been edited ([ ]) and abridged (…) to provide a fast & easy read.
In his letter, Mr. Klarman sets forth a countervailing view to the euphoria that has buoyed the stock market since Mr. Trump took office…[stating that:]
- “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…
- President 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 U.S. long ago abandoned protectionist trade policies is because they not only don’t work, they actually leave society worse off.”
In particular, Mr. Klarman appears to believe that investors have become hypnotized by all the talk of pro-growth policies, without considering the full ramifications.
He worries…that:
- “Mr. Trump’s stimulus efforts could prove quite inflationary, which would likely shock investors
- and the swelling national debt could undermine the economy’s growth over the long term.”
saying:
- “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.”
Much of Mr. Klarman’s anxiety seems to emanate from Mr. Trump’s leadership style,,,[saying]:
- “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…[and that]
- Trump is high volatility, and investors generally abhor volatility and shun uncertainty and,
- not only is Trump shockingly unpredictable, he’s apparently deliberately so; he says it’s part of his plan.”
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