Howard Marks Doesn’t Believe

Billionaire investor and Co-Chair of Oaktree Capital, Howard Marks, doesn’t believe in the magic fairy dust the Fed has sprinkled on the market and very evilly is trying to cast a pall, planting seeds into the minds of investors with his bearish rhetoric and propaganda.

In a letter to Oaktree clients, Marks carried on, rather monotonously, regarding the present state of affairs and summarized his skepticism in a few succinct bullet points.

Today we’re not hearing much about historic valuations being irrelevant, as they’re not terribly high.
Instead, what we’re told is different this time is the relevance of restrictions on future economic and market performance:

There doesn’t have to be a recession.
Continuous quantitative easing can lead to permanent prosperity.
Federal deficits can grow substantially larger without becoming problematic.
National debt isn’t worrisome.
We can have economic strength without inflation.
Interest rates can remain “lower for longer.”
The inverted yield curve needn’t have negative implications.
Companies and stocks can thrive even in the absence of profits.
Growth investing can continue to outperform value investing in perpetuity.

There’s all sorts of gems in this thing, such as:

The avoidable recession – The questions I get most often these days are “Is the U.S. heading for a recession?” and “When will it start?” My answer to the first is a simple “yes.”

or

And who knows exactly how QE works? Last week, at a conference I attended, a participant suggested that under Modern Monetary Theory (see more below), the Treasury could issue a potentially unlimited amount of debt, and if third-party buyers failed to take it up, the Fed could buy it under QE. Does this seem reasonable? If the Fed credits banks with reserves, the banks lend a multiple of those reserves, and the borrowers use the loan proceeds to make purchases or investments, does the process really inject money into the economy, or is it mostly a matter of bookkeeping? Or are they one and the same? Of course, this question is relevant to all nations with fiat currencies.

This is beautiful.

We keep an eye out for the widespread belief that “this time it’s different” because we want to know if markets are being lifted by bullishness, optimism, risk tolerance and low levels of skepticism. Everything else being equal, these things result in asset prices that are high relative to intrinsic values, and their presence exposes us to the risk that they’ll abate, taking asset prices down with them.

Read the whole thing in the link above. Very SAFU reading.

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