"Any year in which the S&P 500 jumps 32 percent and the Nasdaq 40 percent while corporate earnings barely increase should be a cause for concern, not for further exuberance," Mr Klarman wrote.
"On almost any metric, the US equity market is historically quite expensive. A sceptic would have to be blind not to see bubbles inflating in junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla Motors," he wrote. The Baupost Group declined to comment.
Since central banks slashed interest rates to record lows and began a policy of buying up government bonds after the 2008 market crash, the S&P 500 has rallied by more than 150 percent to new all-time highs. Bond yields have fallen sharply and many other assets, from fine art to property in Singapore and London, have leapt in value.
(Read more: Cramer: Has market gotten too hot to handle?)
Mr Klarman is exceptional among hedge fund managers for often holding the bulk of his portfolio in cash, yet still generating annualized returns of 18 percent since 1983 using often highly concentrated investments.
The Boston-based investor was recently ranked as the fourth best performing hedge fund manager of all time for generating $21.5bn in returns over its history, coming behind George Soros, Ray Dalio and John Paulson.
—By The Financial Times