Tags: Klarman | bubbles | asset | stocks

Seth Klarman Warns of Froth in Asset Markets

By    |   Monday, 10 March 2014 12:49 PM

While many investors have grown excited by the torrid rallies in stocks and other financial assets, hedge fund manager Seth Klarman, founder of the Baupost Group, warns that danger looms.

Market gains were overdone in 2013, he says. "Any year in which the S&P 500 jumps 32 percent and the Nasdaq 40 percent, while corporate earnings barely increase, should be a cause for concern, not for further exuberance," he writes in a letter to investors obtained by the Financial Times. "On almost any metric, the U.S. equity market is historically quite expensive."

Klarman specifically cites Netflix and Tesla Motors.

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And it's not just stocks, he notes. "A skeptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality and yields."

Klarman says he doesn't know when a market correction will come, but when it does, it will be a doozy.

"When the markets reverse, everything investors thought they knew will be turned upside down and inside out. 'Buy the dips' will be replaced with 'what was I thinking?' . . .  Anyone who is poorly positioned and ill-prepared will find there's a long way to fall."

Not everyone shares Klarman's bearishness.

Jeremy Siegel, finance professor at the University of Pennsylvania, notes that earnings for Standard & Poor's 500 Index companies are expected to rise 20 percent this year. "If any of these earnings estimates pan out — and they are bullish — hey, we're in about the fourth or fifth inning of this bull market," he tells CNBC.

Siegel sees fair value for the Dow Jones Industrial Average at 18,000. It closed at 16,418.68 Monday.

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InvestingAnalysis
While many investors have grown excited by the torrid rallies in stocks and other financial assets, hedge fund manager Seth Klarman, founder of the Baupost Group, warns that danger looms.
Klarman,bubbles,asset,stocks
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2014-49-10
Monday, 10 March 2014 12:49 PM
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