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Billionaire Howard Marks’ latest memo to his Oaktree Capital Management clients [.PDF] is one of the most depressing things we’ve read on the economy. In the 14-page must-read entitled “On Uncertain Ground,” the money manager details a gamut of issues that most concern him including the sluggish growth in the U.S., the U.S. deficit, the eurozone crisis, China, etc, just to name a few.
Here’s a rundown of a few of his thoughts on the U.S. economy that are, well, depressing.
- “The world seems more uncertain today than any other time of my life.”
If that ominous opening line from the 66-year-old famed money manager doesn’t immediately get your attention, he says the U.S. is going to have sluggish growth for a long time. What’s more is that’s better than the rest of the developed nations.
- “It’s my belief that we’re going to relatively sluggish economic growth in the U.S. for a prolonged period of time. My expectations for other developed nations, given their specific issues, are even less positive.”
Consumers were traumatized in 2008 and even today we still need “significant healing” from the financial crisis, he says.
- “Consumers were traumatized by the crisis of 2008: laid off, forced out of their house, made poorer by market declines, and denied credit. Those who didn’t feel these influences directly were still pounded by headlines trumpeting economic weakness, the collapse of the financial institutions, the need for bailouts, malfeasance in the banking and mortgage industries. It would require significant healing before these influences abate.”
He also notes that businesses in the U.S. haven’t really been hiring. They’ve just been doing more with less.
- “Business investment plays a key role in economic recovery when managers conclude that consumers are about to resume spending after a downturn, they hire workers and invest in new equipment in order to meet the increased demand they believe is coming. Yet the current recovery has seen little in this regard. I think the prevailing attitude has been, ‘Let’s see how far we can stretch out our current capacity before spending to expand it.’ Or as I heard on the radio the other day, in a report on productivity gains, ‘Businesses continue to do more with less.’ Thus companies have built cash hoards, not productive capacity.”
What’s more is he thinks five years from now, we’ll still be asking, “When will the economy will get going?”
- “For me, the bottom line of all this is that we aren’t looking at a period of prosperity. A recovery is underway and is likely to continue, but it is more likely to be lackluster than vigorous. Most Americans’ financial memory consists of V-shaped recoveries and periods of good feeling like the 1990s, when they couldn’t think of reasons not to borrow and spend. Five years from now, I think people will be asking, ‘When will the economy get going? When will we get back to good times?'”
Again, the Marks says that the U.S. is only safe relative to other countries.
- “So what do we find? Economic fragility throughout the world, I think, as well as a number of factors capable of exacerbating the situation in the short run or keeping it weak in the long. I can’t remember a time when no jurisdiction was considered completely safe for investment, but that seems to be the case today. When people enthuse about the U.S., it’s usually only in relative terms: ‘the best house on a bad block.'”
It’s not all completely negative sounding…
- “The outlook certainly isn’t so propitious (and assets aren’t so cheap) as to call for investing aggressively. But at the same time, market conditions tell me this isn’t a time for hiding under the bed. ‘Move forward, but with caution’ — that’s my mantra today. The environment is uncertain, but we shouldn’t find that paralyzing.”
[Hat Tip: Pragmatic Capitalism]
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