Howard Marks Memo Day

Today, I spent the first few hours of market open not staring at price action. Instead I chose to read Howard Marks Memos, an investor with a sound mind and someone I have read about for years. His quality analysis and sound mind in the midst of people just yelling "bubble" is something we all need to hear. I would like to recap a few points that I found to be most interesting, and I wish I could thank him in person. I wont go over all 3 memos I read today, but I will go over this one because it resonated with me.


The big reason I am just doing a recap, is because I have no easy way of sending the memo out and having people read it. I think summarizing it and then linking it below is the best way to get interested in the reading.


Time for Thinking Memo:


Howard mentions how the U.S. economy essentially froze in 2020, 2Q GDP shrunk by an annualized 32.9% which is 3x worse than the greatest quarterly decline in the 70 years of recorded quarterly history! The economy at this point had required life-support, we received this from the Fed and the Treasury in a very timely manner. Howard makes the point that these were "support payments" rather than "stimulus". This is actually a very good point because the support payments were designed to REPLACE the cash that would have normally circulated the economy.


He makes the point that the last 5 months (now 6-7 months) are NON-CYCLICAL in nature, so it is not really subject to the usual cycle analysis most analysts do. He believes that the V-Shape recovery is relatively misleading because in a V, that is symmetrical. The rebound has not really been symmetrical, the economy would have had to come back at the same rate to how it went down.


Positives of the Federal Reserve and the Markets. Where there are positives, there are negatives. Let us start with the positives. The Fed, by lowering the FFR (Federal Funds Rate) and providing stimulus, increased the value of investment assets greatly. Both have flooded the markets, and economy, with liquidity and various other forms of support. Lastly, they continued to mention how they will provide support and market/economic stimulus in the future. Negatives, we suffered the greatest quarterly setback in history, the COVI-19 still is not under control really, and 2nd spike after holidays and such are hindering efforts to re-open the economy.


Lastly, in this short post, I want to highlight Howards take on market leading tech and their valuations. I will post a screenshot of it below, I agree with basically all of it. Which makes me more bullish than I should be.


Happy Investing,

Fiducia B



References:

https://www.oaktreecapital.com/docs/default-source/memos/timeforthinking.pdf?sfvrsn=17818c65_8

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