Howard Marks latest memo
Howard Marks, who co-founded Oaktree Capital Management, writes a quarterly memo on investment markets. It’s one of the most widely read investment commentaries. He has earned a reputation among portfolio managers as one of the best market forecasters. Many traders consider him #2 as the best active value managers behind Warren Buffett.
There are 1,000’s of books written on how to get rich in the stock market. If someone asks me for a good resource to learn more about the markets, I always recommend them either Howard Marks memos or Warren Buffett letters. Warren Buffett letters are written every year and go back to 1977 and Howard Marks memos start in 1990. You will find many of the best investing tips buried inside of these memo’s. There are actually entire books written on summarizing Warren Buffett’s letters to shareholders
In Buffett’s letter this year, he remained positive on the markets as well as the economy. Howard Marks, on the other hand, just wrote a scathing memo that warns of an inevitable market correction. Mark’s latest memo is titled, There They Go Again….Again.
Back in 2005, he wrote a memo titled, There They go Again, which foreshadowed the market crash in 2008. He was a few years early in his call, but he eventually nailed it. I have no doubt that he will nail it again this time. The trouble is getting the timing right. There is no bell that rings at the top or the bottom of the market. I don’t agree with everything written in his memo, but he does make a very strong case for what can go wrong.
I’ve written often about the low volatility trade, speculative digital currencies, the FANG stocks, and the herd of investors moving into exchange-traded funds (ETFs). Howard covers them all in this memo, and reaches the same conclusion as I, which is investor optimism is a sign that we have to be on the lookout for a correction. The elevated status of markets gives him the most concern.
Many investors back in 2007 had a very easy time spotting the housing bubble. This time around, Howard Marks writes about many other areas starting to show signs of a bubble. The biggest and easiest to spot, is the digital currency bubble in Bitcoin. I first wrote about this bubble in May when Bitcoin was $2,800 and it’s up another 25% since that time. In that post, I wrote how I believed the currency could go up 400% more or possibly down 80%. The technology bubble in 1999 had very similar characteristics. Most Bitcoin buyers know that they are buying into a bubble and don’t care because other people are getting rich and they want in. The 1999 technology bubble was no different. At least the housing bubble put a roof over people’s heads. Howard Marks memo goes into great length explaining this cyber currency bubble. Howard gives a thorough explanation why there could be bubble forming in ETFs and to avoid illiquid bonds.
There seem to be increasingly more investment commentaries written about other bubbles growing in real estate, stocks, ETFs, and even bonds. There could even be a bubble in cash for all of those who have been scared into waiting for all these other bubbles to burst! I believe the likely outcome to all this recent wealth creation, is inflation. If there turns out to be no real bubble and markets are not overvalued, we could be at the start of an inflationary cycle. If I begin to see signs of inflation, I will be begin to make some adjustments in your portfolio to try to get in front of this change.
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