While Mr. Klarman has long kept a low public profile, he is considered a giant within investment circles. He is often compared to Warren Buffett, and The Economist magazine once described him as “The Oracle of Boston,” where Baupost is based. For good measure, he is one of the very few hedge managers Mr. Buffett has publicly praised.
.. “Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers,” he wrote.
.. “President Trump may be able to temporarily hold off the sweep of automation and globalization by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces,” he continued. “While they might be popular, the reason the U.S. long ago abandoned protectionist trade policies is because they not only don’t work, they actually leave society worse off.”
.. “The Trump tax cuts could drive government deficits considerably higher,” Mr. Klarman wrote. “The large 2001 Bush tax cuts, for example, fueled income inequality while triggering huge federal budget deficits. Rising interest rates alone would balloon the federal deficit, because interest payments on the massive outstanding government debt would skyrocket from today’s artificially low levels.”
.. “The erratic tendencies and overconfidence in his own wisdom and judgment that Donald Trump has demonstrated to date are inconsistent with strong leadership and sound decision-making.”
.. Trump is high volatility, and investors generally abhor volatility and shun uncertainty,” he wrote. “Not only is Trump shockingly unpredictable, he’s apparently deliberately so; he says it’s part of his plan.”
.. hedge funds had returned only 23 percent from 2010 to 2015, compared with 108 percent for the Standard & Poor’s index — he blamed the influx of money into the industry.
.. “When money flows into an index fund or index-related E.T.F., the manager generally buys into the securities in an index in proportion to their current market capitalization (often to the capitalization of only their public float, which interestingly adds a layer of distortion, disfavoring companies with large insider, strategic, or state ownership),”
.. To Mr. Klarman, “stocks outside the indices may be cast adrift, no longer attached to the valuation grid but increasingly off of it.”
“This should give long-term value investors a distinct advantage,” he wrote. “The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become.”
The New Gold Rush? Wall Street Wants your Data
Not that many years ago, some hedge funds would send people to literally stand in front of big-box retail stores and count the number of people coming in and out, and on that basis make predictions about the retail chains themselves and the economy in general.Alternative data now offers an opportunity to do the same thing at an entirely different scale and level of sophistication... The more fundamental funds will use the data as an input into human-driven investment decisions. For example, they’ll try to predict the sales or churn of a specific company, with the overall gall of of outperforming sell side consensus. Or they’ll try to predict macro economic trends, for example through the observation of satellite images... At the other end of the spectrum, the quantitative funds will take your data set, combine it with other alternative data sets and feed them into very sophisticated models. The growing trend is to completely or partially automate trading strategies on the basis of those models, fed by alternative data... There are a few key characteristics that make your data more or less interesting to hedge funds:
- level of detail,
- history,
- breadth and
- rarity.
What effect the Trump administration will have on the housing market
At a meeting of the National Association of Home Builders in August, Trump said that “there’s no industry, other than probably the energy industry, that is more overregulated than the housing industry.” However, changing those regulations may be beyond his scope.
.. “He could try to use his power to ease it, but a lot of the problems are at the state and local levels,” Goodman said.
.. Goodman said the two biggest issues the housing market faces are supply constraints and credit availability.
.. But Trump’s stance on immigration could have a detrimental effect on housing supply.
“Immigration plays a big part in the labor force for construction,” Smoke said. “It’s one of the constraints we have in new construction.”
.. Something to watch under Trump could be what happens to Fannie Mae and Freddie Mac. Reform efforts have stalled the past several years. But hedge-fund billionaire John Paulson, who is part of the president-elect’s economic policy team, could push for action. Paulson bought shares of Fannie and Freddie in the hope of cashing in when they regained their independence. Since being placed under government control, the mortgage-backers have sent nearly all their profits to the U.S. Treasury, not investors.
“Paulson cares passionately about this, given his positions,” Goodman said.