Although many investors are delighted with the returns they have been getting on stocks and other financial assets, there could be a brutal correction across financial markets, says billionaire hedge fund manager Seth Klarman, founder of the Baupost Group.

Market gains were overblown in 2013, he said. "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," Klarman said in a recent letter to clients that was obtained by the Financial Times.

"On almost any metric, the U.S. equity market is historically quite expensive," he noted, pointing specifically to Netflix and Tesla Motors.