Howard Marks, one of the best-known specialists in distressed debt investment, has warned that the recent global market recovery will unravel as the toll from the coronavirus pandemic mounts, the economy slides into a deep recession and corporate defaults spike.
Marks, the billionaire investor who founded Oaktree Capital Management to capitalise on market dislocations caused by economic downturns, cautioned in his latest memo to clients that the bounce “reflected too much optimism”.
The 73-year-old investor, predicted that markets had further to fall given the severity of the economic and financial shocks that the coronavirus pandemic has triggered.
“The negative case encompasses rising numbers of infections and deaths, unbearable strain on the healthcare system, job losses in the many millions, widespread business losses and mounting defaults,” he said. “If these things arise, investors are likely to shift from the optimism of last week to the pessimism that was prevalent in the rest of March.”
Some economists forecast that the coronavirus outbreak could trigger the biggest US recession since the Great Depression, but are largely hopeful that extraordinary stimulus from the government and the Federal Reserve will soften the blow and potentially even lead to a strong recovery later this year.
Yet in his latest missive, Mr Marks struck a glummer note. He warned that the US in particular would struggle to resolve the “conflict between social isolation and economic recovery” and expressed doubts that the recent stimulus packages would be sufficient.
“I’m concerned that the number of cases and deaths will continue to rise as long as we fail to emulate the successful countries’ actions. The health system will be overwhelmed,” Mr Marks said. “There will be a point where there doesn’t seem to be an end in sight. I’m afraid the headlines are going to get much uglier in this regard.”