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The Fed treats investors like ‘foolish children’ by propping up stocks despite ‘dreadful fundamentals,’ hedge-fund heavy Seth Klarman says

MarketWatch logo MarketWatch 1 day ago Shawn Langlois
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Seth Klarman standing in front of a building: Seth Klarman, founder of the Baupost Groups. Photographer: David Paul Morris/Bloomberg. © Bloomberg Seth Klarman, founder of the Baupost Groups. Photographer: David Paul Morris/Bloomberg.
‘Investors are being infantilized by the relentless Federal Reserve activity. It’s as if the Fed considers them foolish children, unable to rationally set the prices of securities so it must intervene. When the market has a tantrum, the benevolent Fed has a soothing yet enabling response.’

That’s Seth Klarman, the billionaire behind hedge-fund giant Baupost Group, trying to explain the current market climate in a letter to investors cited by Bloomberg News Thursday.

“Surreal doesn’t even begin to describe this moment,” he said, adding that investor “psychology is surprisingly ebullient even though business fundamentals are often dreadful.”

Klarman, who said his fund has recently had a strung stretch as a net seller, continued the comparison saying, “As with the 30-year-olds still living in their parents’ basements, we can only wonder whether the markets will ever be expected to make it on their own.”

As of June 30, Baupost kept 31% of its portfolio in cash, Bloomberg News reported, that’s up from 26% in the month prior, due to the fund’s unloading of a portfolio of mortgage-backed securities and one corporate debt holding, as well as net stock sales.

Baupost has been boosted by gains in EBay (EBAY) , PG&E (PCG) , Liberty Global (LBTYA)  and Viacom (VIAC) to name a few mentioned in the letter.

As for Thursday’s trading session, the Dow Jones Industrial Average (DJIA) was down almost 300 points, while the S&P 500 (SPX) was also firmly in the red. The Nasdaq Composite (COMP) , however, was moving higher.


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