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Richard Drew / AP

The NYT Dealbook details the sobering letter Seth Klarman recently wrote to investors cautioning against overconfidence in the stock market. Klarman, runs the $30 billion Baupost Group, has been compared to Warren Buffett (and actually has received praise from Buffett) and has only lost money in three of the past 34 years.

  • On the markets: Klarman anticipates a "lengthy decline in dollar hegemony, a rapid rise in interest rates and inflation, and global angst."
  • On protectionism: He said "America-first protectionism" will "leave society worse off" and that investors are being blinded by the "potential benefits of stimulative tax cuts" when they know adding barriers to trade is not a path to growth.
  • On Trump's tax cuts: He said "The Trump tax cuts could drive government deficits considerably higher" and said they will harken back to the 2001 tax cuts that "fueled income inequality while triggering huge federal budget deficits." Klarman added that even without Trump's tax cuts, government debt will "skyrocket" when interest rates are raised.

Klarman's advice: Hedge fund managers should stop investing in funds that track the market — like index funds and exchange traded funds (E.T.F.s) — as it's depressing their returns. Hedge funds only returned 23% from 2010 to 2015, compared to the 108% returns for the Standard & Poor's index.

Go deeper

48 mins ago - World

Biden freezes U.S. arms deals with Saudi Arabia and UAE

Trump struck several large arms deals with Mohammed bin Salman (L) and Saudi Arabia. Photo: Kevin Dietsch-Pool/Getty Images

The Biden administration has put on hold two big arms deals with Saudi Arabia and the United Arab Emirates which were approved in the final weeks of the Trump administration, a State Department official tells Axios.

Why it matters: The sales of F-35 jets and attack drones to the UAE and a large supply of munitions to Saudi Arabia will be paused pending a review. That signals a major policy shift from the Trump era, and may herald sharp tensions with both Gulf countries.

Dan Primack, author of Pro Rata
1 hour ago - Podcasts

Robert Downey Jr. launches VC funds to help save the planet

Robert Downey Jr. on Wednesday announced the launch of two venture capital funds focused on startups in the sustainability sector, the latest evolution of a project he launched two years ago called Footprint Collective.

Between the lines: This is a bit of life imitating art, as Downey Jr. spent 11 films portraying a character who sought to save the planet (or, in some cases, the universe).

DHS warns of "heightened threat" because of domestic extremism

Supporters of former President Trump protest inside the U.S. Capitol on Jan. 6. Photo: Roberto Schmidt/AFP via Getty Images

The Department of Homeland Security on Wednesday issued an advisory warning of a "heightened threat environment" in the U.S. because of "ideologically-motivated violent extremists."

Why it matters: DHS believes the threat of violence will persist for "weeks" following President Biden's inauguration. The extremists include those who opposed the presidential transition, people spurred by "grievances fueled by false narratives" and "anger over COVID-19 restrictions ... and police use of force[.]"

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