Carlson Managers Warn Trade War Could Trigger Global Depression

  • Black Diamond duo sees Trump plans causing ‘major’ stock drop
  • Hedge fund surged 19% last year, clients are told in letter

President Donald Trump’s policies may have dire consequences for the U.S. and the global economy, say money managers at hedge fund firm Carlson Capital.

The president’s attempts to tax imports and subsidize exports could touch off a depression, money managers Richard Maraviglia and Matt Barkoff warned in a quarterly letter to clients in the Black Diamond Thematic fund. Their stock-focused fund rose 9.3 percent in the fourth quarter and 19 percent last year, the letter shows.

“If the border adjustment mechanism is implemented as proposed we think it will cause a global depression and a major equity market decline,” they wrote in the letter, which was viewed by Bloomberg. “It is still unclear whether it will happen but at the very least we expect that U.S. trade policy will put downward pressure on global growth.”

Maraviglia and Barkoff present an ominous outlook at a time when many other finance leaders have predicted that Trump will be good for business. They wrote that global stock markets are in a “euphoria stage” and could be derailed by “the merest deceleration” in economic benchmarks from factors such as seasonality, weather or interest rates as valuations are high.

Blankfein, Erdoes

Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., and JPMorgan Chase & Co. asset management CEO Mary Callahan Erdoes said at Davos in January that Trump’s spending policies will be positive for U.S. businesses, and that optimism may be felt around the globe.

Carlson Capital, led by Clint Carlson, oversees $9.9 billion and is based in Dallas with offices in London, New York and Greenwich, Connecticut.

In addition to concerns about a trade war, the money managers see inflation jumping to as much as 5 percent over the next year, even as the economy exhausts its ability to add new jobs.

“The rationale of inflation was cost-push and supply side constraints not demand side stimulus,” the duo wrote. “Thus, we may be looking at the grisly spectacle of stagflation with the equity market on the highest cyclically adjusted valuations ever.”

    Before it's here, it's on the Bloomberg Terminal.