The Anatomy of a Rally by Howard Marks
In this thread, we will share the learnings from the Memo.
While we cannot match what’s there in the original document, we have compressed the 9-page doc into a few tweets which can save you some time.
(1/n)
In this thread, we will share the learnings from the Memo.
While we cannot match what’s there in the original document, we have compressed the 9-page doc into a few tweets which can save you some time.
(1/n)
First some construct:
•NIFTY 12200 on 12th Feb, No Covid-19 scare.
•Last week of Feb- Covid-19 fears hit the market.
•23rd March, Nifty falls to 7600. Down 37% in 5 weeks.
•Today, Nifty-10250. Up 35% in about 3 months.
Baffling!
(2/n)
•NIFTY 12200 on 12th Feb, No Covid-19 scare.
•Last week of Feb- Covid-19 fears hit the market.
•23rd March, Nifty falls to 7600. Down 37% in 5 weeks.
•Today, Nifty-10250. Up 35% in about 3 months.
Baffling!
(2/n)
HM asks:
•How can stocks be doing so well during a severe pandemic and recession?
•Have the securities markets decoupled from reality?
•Is this irrational exuberance?
(3/n)
•How can stocks be doing so well during a severe pandemic and recession?
•Have the securities markets decoupled from reality?
•Is this irrational exuberance?
(3/n)
Why market rallied:
•Central Banks infused record liquidity.
•Covid-19 curve in most locations flattened.
•GDP and earnings will dip this yr, but investors willing to look longer term.
•Increased % of ETFs
•FOMO
•Fundamental & Valuations not relevant.
(4/n)
•Central Banks infused record liquidity.
•Covid-19 curve in most locations flattened.
•GDP and earnings will dip this yr, but investors willing to look longer term.
•Increased % of ETFs
•FOMO
•Fundamental & Valuations not relevant.
(4/n)
Concerns which still persist:
•Re-opening of the economy leading to the second wave
•Vaccine may not be around for a long time
•Impact of Covid-19 on economy is for real.
•Huge Job losses
•Widespread defaults & bankruptcies
(5/n)
•Re-opening of the economy leading to the second wave
•Vaccine may not be around for a long time
•Impact of Covid-19 on economy is for real.
•Huge Job losses
•Widespread defaults & bankruptcies
(5/n)
“What matters most at a given point in time in determining market behavior is which ones investors weight most heavily. Following the March 23 low, the emphasis certainly was on the positives.”
(6/n)
(6/n)
That’s one of the crazy things: in the real world, things generally fluctuate between “pretty good” and “not so hot.” But in the world of investing, perception often swings from “flawless” to “hopeless.”
~ From "On the Couch", Jan 2016
(7/n)
~ From "On the Couch", Jan 2016
(7/n)
"Thus far in 2020, the swing from flawless to hopeless and back has taken place in record time. The challenge is to figure out what was justified and what was an aberration."
(8/n)
(8/n)
Conclusion:
•Rally is built on optimism
•expectations "+" & overlooked potential "-"
•Driven largely by the Fed’s liquidity injunction
•A bounce was warranted, but it came early and quickly went incredibly far.
•Potential for further gain less.
(9/n)
•Rally is built on optimism
•expectations "+" & overlooked potential "-"
•Driven largely by the Fed’s liquidity injunction
•A bounce was warranted, but it came early and quickly went incredibly far.
•Potential for further gain less.
(9/n)
Final point
“In other words, the fundamental outlook may be positive on balance, but with listed security prices where they are, the odds aren’t in investors’ favor.”
Read the full Memo here:
oaktreecapital.com/docs/default-s…
(n/n)
“In other words, the fundamental outlook may be positive on balance, but with listed security prices where they are, the odds aren’t in investors’ favor.”
Read the full Memo here:
oaktreecapital.com/docs/default-s…
(n/n)
