[Marxism] Chilling Davos: A Bleak Warning on Global Division and Debt
lnp3 at panix.com
Tue Jan 22 09:35:47 MST 2019
NY Times, Jan. 22, 2019
Chilling Davos: A Bleak Warning on Global Division and Debt
By Andrew Ross Sorkin
DAVOS, Switzerland — As business and political leaders arrive in the
Swiss Alps for the annual meeting of the World Economic Forum, a
surprisingly alarming letter from an influential investor who studiously
eschews attention has already emerged as a talking point.
The letter, written by Seth A. Klarman, a billionaire investor known for
his sober and meticulous analysis of the investing world, is a huge red
flag about global social tensions, rising debt levels and receding
Mr. Klarman, a 61-year-old value investor, runs Baupost Group, which
manages about $27 billion. He doesn’t make the annual pilgrimage to
Davos, but his words are often invoked by policymakers and executives
who do. His dire letter, which is considerably bleaker than his previous
writings, is a warning shot that a growing sense of political and social
divide around the globe may end in an economic calamity.
“It can’t be business as usual amid constant protests, riots, shutdowns
and escalating social tensions,” he wrote.
He made the remarks in a 22-page annual letter to his investors, which
include the endowments of Harvard and Yale and some of the wealthiest
families in the world. It was being passed around ahead of the Davos
gathering, which draws business leaders like Bill Gates and Sheryl
Sandberg, social and cultural figures like Bono, and elected officials
like Chancellor Angela Merkel of Germany.
Mr. Klarman expressed bafflement at how investors often shrugged off
President Trump’s Twitter outbursts and the retreating American role in
the world during the past year.
“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.
Mr. Trump and the United States delegation canceled plans to attend the
Davos conference because of the government shutdown, which will leave
Ms. Merkel and Prime Minister Shinzo Abe of Japan with an opportunity to
fill the leadership void.
Citing the “yellow vest” marches in France that spread throughout
Europe, Mr. Klarman said, “Social frictions remain a challenge for
democracies around the world, and we wonder when investors might take
more notice of this.” He added, “Social cohesion is essential for those
who have capital to invest.”
Mr. Klarman, sometimes called the Oracle of Boston, is one of the few
financiers ever praised by that Omaha oracle, Warren Buffett. His views
are so sought after that an out-of-print book he wrote about value
investing sells for as much as $1,500 on Amazon.
The circulation of his letter is likely to add to the hand-wringing that
typically takes place in Davos during a week of panels and conversation
over Champagne and canapés.
For one thing, he details the way virtually every developed country has
taken on mounting debt since the financial crisis in 2008, a trend that
he says could lead to a financial panic. He cites the increasing ratio
of government debt to gross domestic product from 2008 to 2017, to a
point exceeding 100 percent in the United States and nearing that figure
in France, Canada, Britain and Spain.
“The seeds of the next major financial crisis (or the one after that)
may well be found in today’s sovereign debt levels,” he said.
Mr. Klarman is especially worried about debt load in the United States,
what it could mean to the dollar’s status as the world’s reserve
currency and how it could ultimately affect the country’s economy.
“There is no way to know how much debt is too much, but America will
inevitably reach an inflection point whereupon a suddenly more skeptical
debt market will refuse to continue to lend to us at rates we can
afford,” he wrote. “By the time such a crisis hits, it will likely be
too late to get our house in order.”
Mr. Klarman believes that the public, almost irrationally, has become
too blasé about all these risks and that investors have been lulled into
taking on even more risk.
“Individuals, professional investors and financiers are prone to project
their own recent experiences into the future,” he wrote. “So when
adversity is absent, investors become complacent. They assume good times
will continue, and they grow careless about risk, perceiving it through
In 2017, Mr. Klarman returned some of his fund to his investors, saying
he didn’t see enough good investment opportunities. Yet he also
acknowledged in his letter that even if he expected an eventual crisis,
“since the worst does not frequently happen, you cannot let the fear of
a monster storm completely paralyze you.” He seems to wrestle in his
letter with how to continue investing profitably while protecting
himself and his firm against his fatalistic expectations.
Mr. Klarman, a registered independent, was a donor to Republicans for
years but has become a critic of Mr. Trump and has sought to elect
Democrats to neutralize him. He said in his letter that he was
particularly worried about the social and economic implications of Mr.
Trump’s efforts to paint accurate information as “fake news.”
“This post-truth moment is quite dangerous,” Mr. Klarman wrote. “Imagine
an incident that threatens national security. Will Americans see eye to
eye on the seriousness of the threat? If our leaders are
truth-challenged, will Americans believe the official explanation of the
threat and the wisdom of the proposed response? Should they?”
The many technology companies in Davos — Facebook, Google and Amazon
among them — may also want to take note of Mr. Klarman’s anxiety that
“more and more people are choosing to only seek out information from
those who share their views” and his blame that “technology and social
media have made it increasingly easy to do so.”
Whether a crisis is around the corner or still years away, Mr. Klarman
seems relatively convinced that it is coming and that it will manifest
itself not just in a market downturn but potentially in more violence as
“It is not hard to imagine worsening social unrest among a generation,”
he wrote, “that is falling behind economically and feels betrayed by a
massive national debt that was incurred without any obvious benefit to
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