For three-and-a-half very long years, nothing about investor behavior has made very much sense to Seth Klarman. (Not that this has stopped the Baupost Group founder from raising additional money.) From the election of a certifiable lunatic as president sparking a massive years-long rally, to the popularity of negative-rate debt and continuing hold of efficient market theory, investors had already proven themselves plenty childish enough in the face of the objectively terrible. What these thumb-suckers definitely did not need is some more infantilizing to convince them that everything is going to be OK no matter how many people needlessly die or how long the economy is needlessly hamstrung because people refuse to do the absolute simplest and smallest thing to stop it. But that’s exactly what they’re getting from the Federal Reserve, much to Klarman’s exasperation.
“Surreal doesn’t even begin to describe this moment,” Klarman said in a letter to investors reviewed by Bloomberg News. Investor “psychology is surprisingly ebullient even though business fundamentals are often dreadful,” he added….
“Investors are being infantilized by the relentless Federal Reserve activity,” said Klarman, who runs hedge fund firm Baupost Group. “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.”
I mean, in fairness, Seth, you’ve said as much about them yourself, but the point is taken.
Going further, he said: “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.”
On the bright side for Klarman, our leaders seem intent on making it impossible for even the Fed to fix things and even the stupidest, most short-sighted investor to ignore how impossibly bad everything really is.
Congressional leaders and the White House, after days of negotiating this week, appear to be on entirely different pages on what should be included in the bill. Some described the process as a “mess” and another lamented that even among Republicans, there was “no consensus on anything.”
“I’m not optimistic that we’ll reach any kind of comprehensive deal,” White House Chief of Staff Mark Meadows told reporters on Capitol Hill Wednesday evening before another negotiation meeting with top Democrats.
The president’s approach to the negotiations over another round of federal stimulus for the ailing economy has confounded economists, lobbyists and lawmakers, who say they are baffled by Mr. Trump’s apparent lack of urgency to nail down another rescue package that he can sign into law…. The president’s strategy to help the economy “is hard to decipher,” said Michael R. Strain, an economist at the conservative American Enterprise Institute who has urged Congress to provide more aid to people, businesses and hard-hit state and local governments. “It seems to me there isn’t a clear strategy to support the economy right now coming from the White House….”
Mr. Trump, he added, “is just misreading how bad the economy is, and how hard of a shape workers and families are in right now.”
Seth Klarman Says Fed Is Infantilizing Investors in ‘Surreal’ Market (Bloomberg)
‘These 2 bills aren’t mateable’: Republicans, Democrats at odds on a coronavirus stimulus deal as pressure builds (USA Today)
Does Trump Want to Save His Economy? (NYT)