The Financial Times reports on comments by Seth Klarman comparing investors to frogs in slowly boiling water who can’t feel the change in temperature until it’s too late, writing:
Seth Klarman, the founder of hedge fund Baupost Group, has told clients central bank policies and government stimulus have convinced investors that risk “has simply vanished”, leaving the market unable to fulfil its role as a price discovery mechanism.
The private letter to investors in his fund, seen by the Financial Times, amounts to a damning critique of market behaviour by one of the world’s foremost value investors.
Mr Klarman criticised the Federal Reserve for slashing rates and flooding the financial system with money since the onset of the coronavirus pandemic, arguing that the central bank’s moves have made it difficult to gauge the health of the US economy.
“With so much stimulus being deployed, trying to figure out if the economy is in recession is like trying to assess if you had a fever after you just took a large dose of aspirin,” he wrote. “But as with frogs in water that is slowly being heated to a boil, investors are being conditioned not to recognise the danger.”
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