In one of his famous “memos,” which was released on March 31, Howard Marks (Trades, Portfolio), co-chairman of multibillion-dollar asset management firm Oaktree Capital, shared his updated thoughts on the state of the market currently as the coronavirus pandemic and oil price war continue on.
The paper, titled “Which Way Now?” starts with a discussion of the market’s performance over the past six weeks. Marks noted that the stock market saw its quickest meltdown in history from Feb. 19 to March 23, with the S&P 500 index losing 33.9%.
It then saw its best three-day gain since the 1930s last week, gaining 17.5%.
However, he also mentioned the degree to which people believe that “long-term phenomena can change in the short run.” He went on to add:
“It’s common knowledge that the coronavirus is still gaining ground in the U.S. and elsewhere; the economy is destined for a serious recession; leveraged entities have to worry about their sources of loans and liquidity; and the price of oil is among the very lowest since the 1973 OPEC embargo. But the prices of financial assets have moved down as well: appropriately, too much or too little? In other words, we have to consider the outlook and the appropriateness of value, in the context of unprecedented uncertainty and the total absence of guidance from analogies to the past.
There’s no doubt about the ability of the government’s and the Fed’s massive cash injections to make things better in the short run, and certainly the market has treated them as sure winners. But I think it’s important to take time out for a serious discussion of possible scenarios. Are this past week’s remedies certain to work? Are the prior week’s negatives really erased? Which will win in the short and intermediate term: the disease, economic ramifications or Fed/Treasury actions? To try to think about these things in a responsible way, I’ve decided to try cataloging the optimistic and pessimistic elements.”
Marks then continued on to discuss the positives and negatives of the event, as well as government programs.
He concluded on a more cheerful note that the “world will be back to normal someday.”
Read Marks’ full memo here.
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