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Billionaire investor Howard Marks warns investors should expect the lowest returns in history and the market is vulnerable to ‘negative surprises’

Billionaire investor Howard Marks warns investors should expect the lowest returns in history and the market is vulnerable to ‘negative surprises’

Howard marks


  • In a memo released Tuesday, billionaire investor Howard Marks warned investors to expect the “lowest prospective returns in history.” 
  • The Oaktree Capital Management co-founder said he’s been forecasting low returns for the last few years, but when the pandemic caused the Fed to move interest rates lower, expected returns lowered as well. 
  • Marks listed an array of reasons interest rates lowered returns, ranging from their stimulative effect to the reduction in the risk-free rate. 
  • “In my view, when uncertainty is high, asset prices should be low, creating high prospective returns that are compensatory,” Marks said. “But because the Fed has set rates so low, returns are just the opposite.”

Billionaire investor Howard Marks warned investors in his latest memo to expect the lowest returns in history, and said that the market is vulnerable to “negative surprises.” 

“In my view, the low interest rates represent the dominant characteristic of the current financial environment, creating the dominant consideration for investors: the lowest prospective returns in history,” the co-founder and co-chairman of Oaktree Capital Management wrote. 

In his memo titled “Coming Into Focus” released Tuesday, he said that for years he has been describing a vulnerable investment environment with the “lowest prospective returns ever,” pro-risk behavior from investors hunting for high returns, excessive asset prices, and an unusually high level of uncertainty.

Read more: MORGAN STANLEY: Buy these 44 cheap stocks poised to surge as the economy continues to recover and reopening expands.

When the coronavirus pandemic prompted the Federal Reserve to lower interest rates, a policy  move Marks viewed as necessary, expected returns lowered even more, he said. Marks listed an array of reasons interest rates lowered returns, ranging from their stimulative effect to the reduction in the risk-free rate. 

“After a brief foray into bargain-land in March,

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What To Expect After A Stunning Economic And Market Recovery

What To Expect After A Stunning Economic And Market Recovery

By Stringer Asset Management

Our strategic and tactical work suggests that both the market and economic recoveries will persist, albeit at a slower pace. It may take more than a year for the U.S. economy to regain its previous level of activity and employment, but the recovery is well on its way. The economic backdrop is promising, and we think the massive and speedy recovery in the third quarter following a brief, yet steep, economic decline will mark the shortest recession in U.S. history dating back to 1852. The U.S. economy likely expanded by roughly 30% on an annualized basis this past quarter based on the indicators we monitor. Future growth will slow but should continue for the next few years.

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The U.S. Federal Reserve’s (the Fed) huge monetary support initially served to stabilize the financial markets and will continue to support a favorable environment for growth. In fact, the Fed’s balance sheet has grown nearly 83% from this point last year, which is twice the pace of the European Central Bank and four times as much as the Bank of Japan. As a result, our most sensitive leading indicators, such as liquidity growth, inflation expectations, and the prices of industrial metals, started to turn upwards in April and May. These trends continue today. In fact, on a year-over-year basis, liquidity growth in the U.S., as measured by narrow money or M1, has grown by almost 45%, which is the fastest pace of any major economy in the world.

Exhibit 1 Money Stock Growth

As a result, market-based inflation expectations have improved in the U.S. better than in any other country. This suggests that the Fed’s policy actions have not only helped to stabilize the markets, but also are helping to improve economic activity.

Exhibit 2 Inflation Expectations

As support spreads through the economy more broadly, we

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Asia Business Leaders Show Signs Of Optimism, But Expect Layoffs To Continue

Asia Business Leaders Show Signs Of Optimism, But Expect Layoffs To Continue

Chinese astrology has it that 2020 is a “metal rat” year, and is associated with turbulence. Covid-19 has certainly provided a quantum of it. With a steep market dive in the first quarter, and sharp worldwide economic contraction, Asian business has had a rough ride. As star signs go, 2020 has so far lived up to its ratty astrological reputation.

The results of a survey conducted from August to September of Hong Kong-based Asia Business Council’s members, who are the chairmen and CEOs of some of Asia’s leading multi-national companies, collectively valued at nearly $3 trillion, and with some 3 million employees, offer insights against the turbulent backdrop of a year dominated by Covid-19. With a response rate of 83% (58 out of 70 members), the results showed a latent optimism and the confidence to re-tool investment focus. Though the outlook for job growth remains uncertain, not surprisingly, these leaders ranked public health and geopolitics as top concerns for their businesses.

A lot of numbers follow here, but they are very telling. When asked their outlook for business conditions in Asia over the next 12 months, and in spite of significant declines in their own revenues, half said they expect to see an improvement, while 33% expect conditions to worsen. Though not a table-pounding endorsement, this is a significant change from 2019, when 55% expected conditions to worsen.

Only 16% of members foresee a prolonged downturn or depression, and just 5% anticipate inflation. The wide distribution of an effective vaccine for Covid-19 is viewed as a pre-condition for a return to pre-pandemic economic levels–an opinion expressed by 91%—that speaks well of the latent, “coiled-spring” potential of

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