Seth Klarman’s work is to take money from clients and invest it. Yet, he made news recently by returning some $4 billion back to his clients. He did not want to invest their money. Why would he do such a thing when it is his job to invest money?
He says the market is not real. It is a fantasy created by easy monetary policy. The market is a charade trying to appear something that it isn’t. Eventually there will have to be a reality check and the market will come back to earth. So he protects his clients by keeping their capital safe, out of the market. He holds some 40% to 50% of his capital in cash.
I ask myself, what is this man seeing? Is he having a spiritual realization of life? Is he disappointed with modern culture?
When I lived on the east coast of the Big Island of Hawaii, there was a homeless man with long mangled hair and dirty clothes. He would travel around on a moped going through the trash. Who was he? He had managed a successful advertising firm in New York. And then one day, got fed up with the craziness and checked out.
Is Seth Klarman doing something similar? Is he having a personal transformation? Or is the problem in the larger economy?
Since I happen to agree with Seth Klarman on the fantasy nature of the economy, and the socially damaging wealth imbalances being created by monetary policy, he is not going through a personal transformation. He is being realistic in a world of illusion.
What is he seeing then? … The global economy is going through a weird transformation. It is trying to be something it is not. Capital share of income rises in advanced countries, while normal people are left out of the economy. And a monetary policy that feeds that imbalance is not healthy nor socially desirable. An underlying sickness is growing.
Janet Yellen gave a message this week that monetary policy will be aggressive in the face of economic weakness. The stock market rose on words that feed their addiction. But she doesn’t understand that her monetary medicine is establishing a long-term sickness of too much capital ownership concentrated in too few hands. The underlying sickness gets worse everyday and cannot be covered up by make-up, free money and fake optimistic smiles.
