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Howard Marks: “This is a Time for Caution”

The latest from Howard Marks is jammed full of good insights and commentary, but I think this one is worth noting.  I am seeing this from an increasing number of credit specialists – there is near universal agreement that the credit market space is getting frothy (via Zero Hedge):

“The good news is that today’s investors are painfully aware of the many uncertainties. The bad news is that, regardless, they’re being forced by the low interest rates to bear substantial risk at returns tha thave been bid down.

Their scramble for return has brought elements of pre-crisis behavior very much back to life.Please note that my comments are directed more at fixed income securities than equities.  Fixed income is the subject of investors’ ardor today, since it’s there that investors are looking for the income they need. Equities are still being disrespected, and equity allocations reduced. Thus they are not being lifted by comparable income-driven buying.

In 2004, as cited above, I stated the following conclusion: “There are times for aggressiveness.I think this is a time for caution.” Here as 2013 begins, I have only one word to add: ditto.

The greatest of all investment adages states that “what the wise man does in the beginning, the fool does in the end.” The wise man invested aggressively in late 2008 and early 2009. I believe only the fool is doing so now. Today, in place of aggressiveness, the challenging search for return should incorporate goodly doses of risk control, caution, discipline and selectivity.”

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