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Billionaire Howard Marks: Lazy Investor Attitudes 'Worrisome'

Billionaire Howard Marks: Lazy Investor Attitudes 'Worrisome'
(Sergey Rasulov/Dreamstime)

By    |   Thursday, 13 June 2019 12:44 PM

Billionaire investor and Oaktree Capital Management Co-Chairman Howard Marks is worried to hear investors say “this time it’s different” or openly wonder if the historic bull market and economic success “can only get better forever.”

Marks questioned nine financial theories he’s heard in recent meetings, including the notion that central banks policy can lead to evergreen market success and that economic recessions can be consistently delayed.

These ideas “represent variations on ‘things can only get better forever,’” Marks wrote, according to CNBC.

If they’re guiding the market, “that should be considered worrisome.”

Marks went on to cast doubts on the idea that the Federal Reserve and other central banks are capable of postponing a recession.

“We’ve always had economic cycles, and I believe we always will,” he wrote. “Eventually, favorable developments will lead people to engage in behavior premised on excessively optimistic assumptions, and eventually the over-optimism of those assumptions will be exposed and the excesses will correct in a period of negative growth,” CNBC quoted Marks as writing.

“Very soon, the current recovery is bound to become the longest in U.S. history,” he continued. “However, I believe the odds are that it’s closer to the end than the beginning. ... The recovery is likely to go on longer, but perhaps not much longer.”

To be sure, the chances of a Federal Reserve interest rate cut this year have dramatically increased in the past month, according to a Reuters poll of economists who warned trade tensions will intensify and the risk of a U.S. recession has crept up.

Fed Chair Jerome Powell said last week the central bank would act “as appropriate” to address risks from the U.S.-China trade war, leaving the door open for a possible rate cut. That is the second sudden shift in the Fed’s tone after it changed its policy bias away from steady tightening in January, Reuters explained.

While many economists now argue the Fed is likely to cut rates this year, some said they were reluctant to change their base case forecasts for the federal funds rate immediately, citing rapidly changing developments on trade talks.

The consensus in the June 7-12 poll of over 100 economists showed the Fed will hold interest rates steady at 2.25-2.50% this year and not cut rates until the third quarter next year - taking the fed funds rate to 2.00-2.25%.

While the latest consensus points to rates on hold this year, 40 of 100 common contributors from last month forecast at least one rate cut at some point in 2019, compared to just eight respondents in the previous poll.

When asked about the probability of one Fed rate cut this year, the median from a smaller sample of economists showed a 55% chance, with the highest at 100%. The probability was a still-high 40% for two rate cuts this year.

“There is a full-blown trade war. This final round of tariffs against China is the big, big concern,” said Scott Brown, chief economist at Raymond James.

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Billionaire investor and Oaktree Capital Management Co-Chairman Howard Marks is worried to hear investors say “this time it’s different” or openly wonder if the historic bull market and economic success “can only get better forever.”
billionaire, howard marks, lazy, thinking, markets
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2019-44-13
Thursday, 13 June 2019 12:44 PM
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