THREAD
A few key notes and many brilliant insights from Howard Marks recent memo "Knowledge Of The Future" which raises important questions for policy makers, government and regulators of financial institutions. (1/n)

@Oaktree

Marks writes on the paradox of Investing.

Investing is the act of positioning capital so as to profit from future developments. There is no such thing as future developments. (2/n)

All views about the future use the terms like analysis, assessment, projection, prediction and forecast. Rarely do we see the term guess.

There is practically no such thing as meaningful knowledge of future investment environment. (3/n)

We use extrapolation from the past as the best way to deal with the future.

There has to be good reason to believe in the past for extrapolation.

Blind faith in the relevance of the past patterns makes no more sense than completely ignoring them. (4/n)

If you are experiencing something that you have never seen before, you simply can't say you know how it will turn out.

In other words, we may not be able to know the future, but that doesn’t keep us from reaching conclusions about it and holding them firmly. (5/n)

One of the thorniest questions remains how society and its leaders will make the trade-off between minimizing deaths from the virus and restarting the economy.

There’s no algorithm for deciding whether to favor life versus economic improvement for millions. (6/n)

The reopening of the economy is likely to be gradual and, until a vaccine is perfected or herd immunity is reached, subject to alternating periods of progress and retreat. (7/n)

There’s no doubt in anyone’s mind that there was a pressing need for a swift and pronounced response to the economic impact of the effort to combat the pandemic. (8/n)

The stimulus, loans, bailouts, benefits and bond buying that have been announced so far add up to several trillion dollars.

Would there be negative effects of this, such as burgeoning inflation, downgrade of U.S. creditworthiness or $ losing its status as reserve currency (8/n)

What’ll be the impact on America of the loss of a substantial portion of the 2nd quarter’s production of goods and services?

How will the economy rebound, and at what speed?

If we have stops and starts, and if workers return gradually, is a V-shaped recovery still likely? (9/n)

On the regulators - We are in a regulatory wonderland where there’s no pretense that financial statements have to be accurate or current. What’s the Fed’s purpose in buying non-
investment grade debt? And why should the SEC provide relief to leveraged investment vehicles? (10/n)

Most of us believe in the free-market system as the best allocator of resources. Now it seems the government is happy to step in and take the place of private actors.

We have a buyer and lender of last resort, cushioning pain but taking over the role of the free market. (11/n)

When people get the feeling that the government will protect them from unpleasant financial consequences of their actions, it’s called “moral hazard.” (12/n)
#moralhazard

People and institutions are protected from pain, but bad lessons are learned.

If these parties get to enjoy the fruits of their actions when they’re successful but are protected from loss when they fail, risk-taking is encouraged and risk aversion is suppressed. (13/n)

Markets work best when participants have a healthy fear of loss. It shouldn’t be the role of the Fed or the government to eradicate it.

I see no reason why financiers should be bailed out simply because the event they’re being harmed by was unpredictable(14/n)

Would love to hear thoughts from @kaul_vivek @dmuthuk @ananthng @andymukherjee70 on the same.

@prabhusaurabh91 you might have read this but thought you might be interested in this

Link to the memo - "Knowledge of the future"

https://www.oaktreecapital.com/insights/howard-marks-memos