Howard Marks recently spoke at the Milken Institute Conference on October 19, 2021 and I share my key takeaways on what he said about the economy, inflation, investing trends, and cryptocurrencies.
When asked, “How do you determine intrinsic value?” Howard responded that normally you figure out what the cash flows will be and discount those back to the present at a fair discount rate and apply windage for uncertainty.
And this was especially salient: “First of all we had the lowest interest rates in history, and if something grows faster than the discount rate, then in theory it’s worth infinity. So it’s hard to operate in a world where things are worth infinity.”
So I interpreted that as long as anything is growing above a 0% discount rate, then there is apparently no price that is too much to pay. This is incredibly disconcerting to imagine we live in this kind of world now.
Howard said that investing is full of on the one hand and on the other hand, saying “on the one hand, you want to invest on the strength of the economy and don’t want to be left behind and FOMO is a concern. And on the other hand it is a time to be careful because the worst of loans are made in the best of times.”
To me, this could be a foreshadowing of things to come if we have an implosion of corporate debt as the potential main domino that could cause the real end to the current bull market cycle if it falls. But who knows! Just like Howard resists prognosticating, we’re probably better off assessing what risks we’re willing to live with instead of trying to time any market cycles.
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