Seth Klarman touted gold as a safe asset, and dismissed crypto as risky and pointless.
The Baupost Group boss predicted the Federal Reserve would prematurely end its interest-rate hikes.
Higher rates could spell trouble for funds that have taken too many risks, Klarman said.
Seth Klarman trumpeted gold as a haven asset, dismissed cryptocurrencies as dangerous and pointless, and predicted the Federal Reserve would back down from its inflation fight during a rare interview with Harvard Business School, which was filmed in March and released this week.
The billionaire investor and Baupost Group chief — widely seen as Warren Buffett's spiritual successor — also championed the US dollar, and warned rising interest rates could spell trouble for funds that have taken too many risks in recent years.
Here are Klarman's 7 best quotes, lightly edited for length and clarity:
1. "The kitchen-table reality for people is the cost of meat is up 10% or 20%, and the cost of driving a car is up 30% or 40%. These are nasty, massive increases now." (Klarman was underscoring how inflation is hitting Americans consumers.)
2. "The market has come to believe in an omniscient Federal Reserve, and it's no such thing. These guys don't really know what they're doing in any deep way. It's a giant financial experiment, and we're at the mercy of their experiment that maybe is right now in the process of going wrong, so God help us."
3. "The market has priced in five or six increases this year alone. What's hard to think about is whether the Fed will raise rates into a slowing economy and a melting-down financial market. My guess is they'll chicken out at some point." (Klarman asserted that inflation, lower stock prices, Russia's invasion of Ukraine, and the absence of last year's stimulus would cool the US economy.)
4. "That's going to be a big shock that is going to test financial institutions. Who's been hedged? Who's been writing derivatives they shouldn't write? Who's been stepping out to take greater risks in their portfolio?" (Klarman was saying rising interest rates could catch out reckless and overleveraged funds.)
5. "The US has had an enormous advantage of the dollar being the world's reserve currency for a very long time. It's unlikely to change anytime soon. It's hard to imagine people accepting Chinese currency, it's hard to imagine people accepting cryptocurrency. There are just too many uncertainties."
6. "I'm a fan of gold. I think gold's valuable in a crisis. If the world turns to hell, the war expands and gets worse, God forbid a nuclear weapon is used, I think people are going to say: 'How do I know what anything's worth anymore? I'm going to make sure I have some gold because I don't want to not have money at a time of desperation.' It may never come to that, but I think it's prudent to have a little bit of your portfolio in gold."
7. "I can't see the point of crypto. It has this feel to me of being like catnip for techies. Why do people need 10 or 50 different cryptocurrencies? I don't get it. I don't think anybody needs to own it. It just seems to me that it could end up very much in tears. (Klarman suggested virtually all crypto could end up worthless.)
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