SAO PAULO – With a positive view on the performance of governments and central banks throughout the pandemic, in the sense of providing stimulus, albeit at the cost of inflation, mega-investor Howard Marks, co-founder and vice president of Oaktree Capital, stated this Thursday (26) that he does not see a change in the US stock markets, although asset prices are currently at a stronger pace than the country’s own economy.
On Expert XP’s panel, Marks recalled that the current economic cycle is atypical due to the pandemic, said that government reactions were very successful, with relevant results on activities, and highlighted that he sees markets as healthier now than than in other crises, even if they are not in sync with the evolution of economies. While US stocks soared, he said, the economy is only at the beginning of an expansion cycle, which does not indicate a problem but rather room to grow.
“Although the stock market is booming, the risk of recession or an economic slowdown is not substantial,” he said, noting that the S&P 500 index has more than doubled since March 23, 2020.
Delta variant and inflation
Still aware of the consequences of the pandemic, the mega-investor said that he naturally sees a drop in consumption in the United States compared to levels in May and June, partly due to a normalization of demand until then repressed and encouraged by the benefits given by the government to the population – which resulted in what he calls a “spending explosion” – and also in function of the delta variant.
And if, on the one hand, the variant has a more negative effect from a business point of view, on the other, it can help to tame one of the main concerns of the financial market at the moment. “Ironically, fear of inflation has been the biggest problem for markets over the past six months. And an economic slowdown linked to the delta would be a kind of cure for inflation,” he said.
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Reticent about macroeconomic projections and following a philosophy of value investing, “bottom-up”, more focused on micro analysis for decision-making, Marks emphasized that he has not changed behavior due to forecasts related, for example, to inflation or interest rates.
In any case, he explained that his portfolio has good exposure to segments such as oil and gas, which have the ability to partially reflect an acceleration of inflation, as well as to the real estate market.
Less Fed and US Government Actions
With regard to measures taken by central banks and governments to contain the effects of the pandemic on economies, even though inflation is one of the consequences, Marks welcomes the initiatives promoted.
“It’s not because something can have a negative consequence that it shouldn’t be done. If the US government and other central banks hadn’t done what they did last year, we would likely be in a global depression today. So it was the right thing to do, but there are risks involved”, he emphasized.
That said, the investor argued that, once the economy is stronger and aid is no longer needed, that the government and the Federal Reserve, the US central bank, “do less”.
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