Howard Stanley Marks Speech From The 2018 Delivering Alpha Conference

Delivering Alpha full speech from Howard Stanley Marks  – see more of our coverage here

Q2 hedge fund letters, conference, scoops etc

[00:00:00] Male 1: However we have to notice this isn’t baseball and we don’t know how many innings there will be. So if it was a nine innings game and you know that it would be but it could be 14. Of course when you get to this point in the cycle people start pushing back the horizons, when it’s been going on for five years they say I think we could make it three more. If it’s going after 10 years they say I think I could make it 5 more which is kind of intuitive. People are doing that now that, that showed up. [00:00:00] Male 2: [00:00:43] Male 2: JP Diamond not that long ago said we are in the 6th innings, Warren Buffet seemed to agree with him. What do they see that we don’t? [00:00:50] Male 1: Well first of all the economic recovery we’re really driving blind now. We’re in the tenth year of an economic recovery and the record since the war is 10 years. So will we beat the record? It looks like we will but is there something about 10 years which causes things to implode? [00:01:14] Male 2: I can say maybe you throw history out the window and we’ve just extended the cycle because of tax reform, rates coming off and other things that are going on fundamentally around the world that are pretty positive. [00:01:26] Male 1: Exactly but I’ve just finished a book on cycles called ‘Mastering the Market Cycle’ and it’s going to the printers. One of the things it says is that extended bull markets are usually greeted by four words ‘it’s different this time’. In every extended cycle that I see in my 50 years when you are getting in the later stages people start coming up with rationalisations for why it’s not going to end and of course usually it turns out not to be any different. So we’ll see, certainly if [inaudible 00:02:09] and he said he doesn’t see a recession this year. [00:02:15] Male 2: No signs of a slowdown he said. [00:02:16] Male 1: Or next year. I don’t see them either but when you’re talking about the 10th year or 11th year of recovery and the 10th year of a bull market. How much do you want to push your chips out on the table or do you want to take a few off, that’s really the key question. [00:02:38] Male 2: You said in January and certainly got a lot of fodder, that easy money has been. The market has changed a little bit since then, valuations have come in, earnings certainly look strong. Do you still think- is the market more attractive today than it was in January when you wrote that? [00:02:55] Male 1: It is more attractive because the earnings estimates have gone up a lot. If you went back 8 months ago before the tax bill was passed we were talking about a P/E ratio on the S&P of about 23. Now the earnings expectations, the growth projected this year was so high that now we’re talking about a P/E of about 17. The market went from meaningfully overpriced, not a record but overpriced, to average price today.

That’s a big change however it should be noted that even though earnings projections show the growth in the 20’s of percent this year the market is up only a couple of percent this year. So in other words a lot of of the appreciation of the stock market was front ended. It had happened by January I think and even though earnings are moving like this stock prices are not.

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