Mastering the Market Cycle by Howard Marks

Author:Howard Marks
Language: eng
Format: epub, pdf
Publisher: Houghton Mifflin Harcourt

The quoted prices for debt continued downward in the first quarter of 2009, as composure, confidence and a “base” of buying power had yet to return in full. But the ability of investors to buy in large scale dried up as the year began, because of the factors listed just above. And when buying interest materialized in the second quarter—perhaps because distressed debt buyers came to the realization that they had shrunk unreasonably from the daunting task of “catching a falling knife”—the dearth of supply for sale contributed to a powerful move to the upside.

The Global Financial Crisis shows the credit cycle at the greatest extreme since the Great Depression. Debt markets historically had been marked by general conservatism, meaning excesses on the upside were limited and most bubbles took place in the equity market. Certainly it was the site of the Great Crash of 1929.

But the creation of the high yield bond market in the late 1970s kicked off a liberalization of debt investing, and the generally positive economic environment of the subsequent three decades provided those who ventured in with a favorable overall experience. This combination led to a strong trend toward acceptance of low-rated and non-traditional debt instruments.

There were periods of weakness in debt in 1990–91 (related to widespread bankruptcies among the highly levered buyouts of the 1980s) and in 2002 (stemming from excessive borrowing to fund overbuilding in the telecom industry, which led to prominent downgrades that coincided with several high-profile corporate accounting scandals). But the effects of these were limited because of the isolated nature of their causes. It wasn’t until 2007–08 that the financial markets witnessed the first widespread, debt-induced panic, with ramifications for the entire economy. Thus the GFC provided the ultimate example of the credit cycle’s full effect.

∾

As I described it in “Open and Shut,” the capital market cycle is simple in its operation, and its message is easy to perceive. An uptight, cautious credit market usually stems from, leads to or connotes things like these:

fear of losing money

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.