Howard Marks: The Race is On

Howard Marks is out with a new letter to Oaktree clients. Over the years Mr. Marks memos have been an excellent source of market commentary, particularly for value investors.

The full note is below my comments:

  • Mr. Marks notes the absence of creative financial engineering innovations as a critical warning flag. We wonder if the Fed’s QE program hasn’t absorbed Wall Street’s collective creativity and might qualify as the “modern miracle” popularized since the crisis.
  • We agree with the notion that we are not at the danger zone of risky behavior in the markets. In fact, we feel that we are only at the point where risky behavior is not openly mocked. Still lots of room for the reckless.
  • The term “race” is used throughout the memo. First as the title and reference to a 2007 memo, then again in an analogy. The race mentality is key in understanding the current market. First, the ongoing dominant race is fund managers worried about exiting a bull market too soon (career risk in missing bull runs). Second, is the fear about the race to the exits when things start to go sour. The push and pull between these two races is what has elevated the market. Everyone can identity the trend higher but are still worried that the correction everyone knows is coming will embarrass them. They sell in anticipation and then buys back in as the market levitates.

The race is always on.

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H/T Conrad


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