Just like David Einhorn and many other hedge fund managers, Seth Klarman, President of the Baupost group, is equally unimpressed by Ben Bernake’s QEIII. Seth Klarman Baupost’s is extremely pessimistic about the effectiveness of the central banks’ ‘so-called rescue measures.’ He thinks that QEIII can boost the economy for artificial reasons, and for a short period of time, but will not provide any substantial economic growth.
The focus areas where Ben Bernanke’s latest dose of monetary easing will have impact on is the availability of cheaper mortgages; the prospect looks comfy but adds no real worth to the housing market and essentially ignores the vast number of other important issues that are equally in need of leverage, like infrastructure, technology, etc. Seth Klarman observes how this aggressive MBS buying program could recycle US economy back to its vulnerable state of 2007-08. The cheap mortgage can result in overbuying and overbuilding in the housing market again. The devalued dollar, inflationary risk, and low interest rate can all play a part in forwarding the housing market to the brink of yet another collapse.
Seth Klarman also has scathing comments for Ben Bernanke’s action plan at such a time when the economy has recovered sufficiently, and there is no further need for easing. Where will the Federal Reserve sell the truckload of securities it owns, and how will it cover the massive losses at a time when interest rates have increased? The letter criticizes the Fed’s policy, which encourages people to spend their savings, uses retirement savings to save banks, and promotes overpaying and overspending.
Seth Klarman asks ‘what kind of entity tricks its citizens into paying higher and higher prices to buy stocks’? Klarman calls Ben Bernake’s QE3 ‘a scheme’ and ‘an attempted manipulation of Americans’ behavior.’ David Einhorn called QEIII ‘an ‘Amex Debasium Card.’ Both famous hedge fund managers are considered to be left-leaning, and David Einhorn has noted that he is a registered Democrat. Seth Klarman gave the maximum donation to Hillary Clinton and Barack Obama in 2007.
Baupost Group had returns for the third quarter of 2012, and has been up for the year. The performance was attributable to the liquidation in Lehman’s debt. We have reported several times that Klarman and his hedge fund are actively involved in the Lehman Brothers Holdings Inc. (PINK:LEHMQ) and Bank of America Corp (NYSE:BAC) litigation. Baupost expects returns from the settlement agreement to reach the fund this month and at the beginning of next year.