[Marxism] Chilling Davos: A Bleak Warning on Global Division and Debt

Louis Proyect 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 
American leadership.

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 
rose-colored lenses.”

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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