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Howard Marks Asks "Is It The Fed's Job To Keep Market Dislocations At Bay Forever?"
08-08-2019, 06:57 PM,
#1
Howard Marks Asks "Is It The Fed's Job To Keep Market Dislocations At Bay Forever?"
Howard Marks Asks "Is It The Fed's Job To Keep Market Dislocations At Bay Forever?"

<p>Howard Marks, co-founder of Oaktree Capital Group has emerged as one of the few voices to criticize the Fed for cutting interest rates last month, according to <a href="https://www.bloomberg.com/news/articles/2019-08-08/oaktree-s-marks-rebukes-fed-for-inflating-prices-enriching-rich">Bloomberg</a>. Marks believes that more monetary stimulus will simply boost asset prices further, which will just serve to widen the income inequality gap.</p>

<p>To which, we respond: <strong>Marks is spot on. </strong></p>

<p>Sure, it's a relatively simple concept, but then again so is not racking up $22 trillion in debt and catalyzing debt bubbles that, depending on sector, are approaching or have already eclipsed levels seen before the 2008 Great Recession. </p>

<p>Marks opens his latest <a href="https://www.oaktreecapital.com/docs/default-source/memos/on-the-other-hand.pdf">memo </a>to clients, dated July 26, asking, <strong>"...is it the Fed's job to sustain expansions and keep market dislocations at bay <em>ad infinitum</em>?"</strong></p>

<p>With the bull market now passing a decade-long with record low unemployment, <strong>Marks says the economy simply doesn’t need the Fed's help</strong>. He argues that the rate cut last week will make it harder for people with less savings, and also lenders, to earn decent returns.</p>

<p><a data-image-external-href="" data-image-href="/s3/files/inline-images/oak.png?itok=U3CDtzpx" data-link-option="0" href="https://www.zerohedge.com/s3/files/inline-images/oak.png?itok=U3CDtzpx"><picture><!--[if IE 9]><video style="display: none;"><![endif]--><source srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/oak.png?itok=-RPlxjA5 1x" media="all and (min-width: 1280px)" type="image/png"></source><source srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/oak.png?itok=-RPlxjA5 1x" media="all and (min-width: 480px)" type="image/png"></source><source srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/oak.png?itok=-RPlxjA5 1x, https://zh-prod-1cc738ca-7d3b-4a72-b792-...k=-RPlxjA5 2x" media="all and (min-width: 1024px)" type="image/png"></source><source srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_desktop/public/inline-images/oak.png?itok=-RPlxjA5 1x" media="all and (min-width: 768px)" type="image/png"></source><source srcset="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/inline_image_mobile/public/inline-images/oak.png?itok=U3CDtzpx 1x" type="image/png"></source><!--[if IE 9]></video><![endif]--><img data-entity-type="file" data-entity-uuid="0adf97b0-5c43-479b-a004-9c0b2eab8c42" data-responsive-image-style="inline_images" height="284" width="500" src="https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/inline-images/oak.png" alt="" typeof="foaf:Image" /></picture></a><br />
 </p>

<p>Marks said:</p>

<blockquote>
<p><strong>“The process of lowering the rates causes assets to inflate. There will be more wealth piled up by the people who have assets and it’ll be harder for people who just have a little bit of savings to make a return.”</strong></p>
</blockquote>

<aside data-state="ready"><p>He continued:</p>

<blockquote>
<p><strong>“We generally don’t stimulate the economy after ten good years. We usually accept that there will be an ebb and flow to the cycle and there might be justified recession.”</strong></p>
</blockquote>

<p>And Marks' timing for speaking out may wind up being dead-on. The likelihood of a US recession in the next year has risen to 35% in August from 31% previously. Trade tensions continue to fuel uncertainty and the yield curve appears to be forecasting that a recession is inevitable.</p>

<p>But the market has been strong enough that opportunities to find distressed investments are still slim. Marks says that capital markets continue to be supportive of companies that need rescue financing or refinancing. Oaktree's distressed fund was raised in 2015 and is now only about a third invested.</p>

<blockquote>
<p>“The fact that we’re roughly 30% invested after this time shows you that the going is slow in distressed. This is not the kind of climate in which good healthy companies with good businesses get into distress,” Marks said. </p>
</blockquote>

<p>Marks' full memo can be read here:</p>

<p><br /><iframe class="scribd_iframe_embed" data-aspect-ratio="0.7729220222793488" data-auto-height="false" frameborder="0" height="600" id="doc_87586" scrolling="yes" src="https://www.scribd.com/embeds/421221822/content?start_page=1&view_mode=scroll&access_key=key-kQLsZodf6iXF9Ttg1yrF&show_recommendations=true" title="On the Other Hand" width="100%"></iframe></p>
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