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Hege fund giant Seth Klarman says the ‘rocket fuel’ feeding this rally will soon ‘run out’ - CNBC

JANUARY 22, 2020

Key Points

  • Seth Klarman, who runs Baupost Group in Boston, wrote in a letter to investors that the “the rocket fuel that has propelled markets in 2019 will run out.”
  • He also noted about 31% of the fund’s portfolio was in cash to end 2019.
  • Stocks are coming off a blockbuster year as the S&P 500 surged nearly 29% in 2019, its best annual performance since 2013.
  • But Klarman noted in the Jan. 15 letter he is worried about a possible “liquidity trap” as low rates don’t seem to jolt economic growth, especially in Europe.

GP: Seth Klarman 180608 - 105691896

Seth Klarman, chief executive officer of The Baupost Group LLC, listens during an interview in New York, June 8, 2018. Jeenah Moon | Bloomberg | Getty Images

Billionaire hedge fund manager Seth Klarman is warning this rally that has taken stocks to record highs could soon end.

Klarman, who runs Baupost Group in Boston, wrote in a letter to investors that the “the rocket fuel that has propelled markets in 2019 will run out,” according to a Bloomberg News report. A Baupost spokeswoman confirmed the contents of the Bloomberg report to CNBC, but declined to comment further.

Klarman noted that about 31% of the fund’s portfolio was in cash to end 2019.

Stocks are coming off a blockbuster year as the S&P 500 surged nearly 29% in 2019, its best annual performance since 2013. Hopes around a possible U.S.-China trade deal, which was signed earlier this month, and the rate cuts from the Federal Reserve were major contributors to the rally.

But Klarman noted in the Jan. 15 letter he is worried about a possible “liquidity trap” as low rates don’t seem to jolt economic growth, especially in Europe. That’s where “interest rates go to die,” he wrote.

To be sure, Klarman issued a similarly dire warning at the start of 2019, citing the impact of global tensions on the global economy along with rising debt levels and a pervasive political divide.

The hedge fund manager, who’s drawn comparisons to Warren Buffett for his disciplined value style, as of a few years ago was managing about $30 billion after racking up years of market-beating returns. However, according to this latest report,  Baupost managed only high-single digit returns last year, citing a “few mistakes” he made along with “conservative positioning,” according to the Bloomberg account.

—CNBC’s Michael Bloom contributed to this report.

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