In one of his famous "memos" released on Tuesday, Howard Marks (Trades, Portfolio), co-chairman of multibillion-dollar asset management firm Oaktree Capital, discussed the ongoing pandemic and the economic outlook resulting from those headwinds.
The paper, titled "Coming Into Focus," began with the guru commenting that "not much has changed in the economy or the markets" since his last memo two months ago.
"The toll from Covid-19 continues to rise, the economic outlook is largely the same, vaccines remain some time off, and the S&P 500 is back where it was in early August" he wrote. "So I'll repeat what I said then: it's mainly been time for thinking. Fortunately, the more I've thought about the issues, the more things have come into focus for me. Thus, I'm going to use this memo to go into greater detail on a few topics."
Among the many topics he covered were the pandemic, the need for additional government stimulus in the wake of the economic impacts of the Covid-19 virus as well as the need for a vaccine to get it under control. Marks also discussed the power low interest rates have had on sending the market indexes to new highs as well as changes in the composition of the stock market.
In summing up what all of these factors mean for the markets and investors, Marks wrote:
"As I'm sure is my bias, I lean toward defense at this time. In my view, when uncertainty is high, asset prices should be low, creating high prospective returns that are compensatory. But because the Fed has set rates so low, returns are just the opposite. Thus the odds aren't on the investor's side, and the market is vulnerable to negative surprises. This is how I described the prior years, and I'm back to saying it again. The case isn't extreme – prices aren't grievously high (assuming interest rates stay low, which they're likely to do for several years). But it's hard in this context to find anything mouth-watering."
Read Marks' full memo here.
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