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Good morning and welcome back to Anand talks. Today I have Shashwat with me with a checklist of sorts made by the great Howard Marks. Howard Marks started as an equity analyst. Then at the suggestion of his boss in the '70s became a junk bond investor. And then spun off his own fund and made it into a distressed asset fund.
He has written two seminal books. But what I like the most important thing, it's a very good book. And then he has written a book on market cycles, which I found very interesting. Howard Marks writes a memo regularly to his clients, which he puts it out transparently and it is one of the most read newsletters in the investment community.
Shashwat and me discuss one of his memos whether BSE will follow the laws of economics last week. Today we are discussing a checklist that the great man has prepared. Let us look at it with Shashwat. Okay, I'll go one by one and you can tell me where you believe we are. So, this is called the poor man's guide to market assessment.
The screenshot is on is on the video and you can look at it and I'm going to cover it and let's see where you know, my uncle thinks we like. So, he gives a description saying, "Here's a simple exercise. I have listed a number of market characteristics. For each pair, check off the one you think is most descriptive of today.
And if you find that most of your check marks are in the left-hand column as I do, hold on to your wallet." So, the first point on the economy, he's saying, "Is the economy vibrant or is it sluggish? In America, the economy is vibrant. Okay. And outlook, is the outlook generally positive or negative?
As of now, in America, it looks positive. And lenders, are they eager or are they reticent? Lenders are very eager to lend. Why do you say that? Because you are finding that junk bonds are also getting money. Private credit is giving money freely. Even though there is a uh Like in Blue Owl, there is a canary singing in the singing in the coal mine.
You still have money easily available for these bonds. But at the same time, mortgages have become very expensive. And they have crossed 7%. So, I'm not able to judge. Okay. Capital markets right now, are they loose or are they tight? Extremely loose. In the US? Yes, and even in India. Because you have people putting money into non-sense issues issues which make no sense.
They are willing to pay astronomical valuations. Most of these stocks are being sold for offer for sale, and people are lapping up in it looking for short-term gains. Okay. And is capital plentiful or scarce in the market today? I think it's plentiful. There's too much cash floating around the system.
Okay. Terms, are the terms on loans easy or restrictive? Very easy. Not even remotely restrictive. Okay. And the next point is interest rates, do you feel they are low or high? In my opinion, neither low nor too high. Okay, somewhere in the middle. Somewhere in the middle. Are the spreads narrow or are they wide?
I think spreads are wide now. Making what is being asked and what is being given. No, but I think they mean spreads in terms of the risk curve. That is, are the spreads between the risk-free the high risk large or not very low. People are not being compensated for risk. Okay. So, there are three points in this.
Are investors optimistic or pessimistic, sanguine, distressed, eager to buy, uninterested in buying? They are definitely the first thing is what did you say is the first one? Optimistic versus pessimistic. They are highly optimistic. They are not distressed. They are sanguine. And the what was the third one?
Eager to buy, uninterested in buying. eager to buy. Okay. And uh for asset owners, that is uh for people who already own, are they happy to hold or are they rushing for the exits, do you think? I think in India they are definitely rushing to seek exit. In America it is too difficult to call at this point of time because I don't know what is happening because of the AI boom.
But in India people are looking for the exit. Especially the foreigners. Foreigners are looking for the exit door. You're saying foreigners are looking for an exit in India, but what about domestic investors? Domestic investors go home. Not directly into stocks but through mutual funds into stocks. Mutual funds have no place to hide today.
Okay. Are the sellers few or are they many? I think there are many sellers. All the knowledgeable players are sellers in this market. Okay. And uh are the markets do you feel crowded or starved for attention today? I think they are crowded for attention. Okay. And funds, there are three. So, hard to gain entry, open to anyone, new ones daily, only the best can raise money
New ones daily, anybody can raise money in this market. Okay. GPs hold the cards on terms, LPs have bargaining power. Which one do you think? I definitely think LPs have bargaining power in today's market. Limited powers of the bargaining force. Yes, because even with a couple of friends of mine who work in you know, these ancillary industries, I think that they're promising anything and everything in order to be able to uh quote capital.
Yeah. And uh recent performance, has it been strong or has it been weak? In my opinion, weak. For 3 years, the market has gone nowhere. Okay. And asset prices, are they high or are they low? Prospective returns, are they low or are they high? I think asset prices are higher, so prospective investments are lower.
I think most importantly, what has happened is bond yields have gone up and bond rates in the international markets are at the place where they were at least the last 25 years ago. In fact, I made a remark in my Tamil program today that the bond market has reached a level at the 30-year yield has reached a level which was last seen when I was 3 months old.
Right. Popular qualities, that is qualities that are today valued in the market, are they aggressiveness or caution and discipline? Are they broad reach or selectivity? No, no, they are broad reach and very aggressive. The quality is what is People don't have any time or respect for quality. And the other thing that that he asks is um available mistakes.
That is, do you feel that today the available mistakes are either buying too much or buying too little, paying up or walking away, taking too much risk or taking too little risk? Out of these, which are which do you feel are the available mistakes in the market today? What does he mean by available mistakes?
So, he means you feel that it is more likely that the mistake a person can make today in the market is buying too much versus buying too little. If they buy too much, if they buy too much, they'll be stuck for a long time. They have to buy the quality issues, which are few and far between, and allow them wait patiently for the big issues to correct more.
And the mistakes that the market make available for you, is it paying up, that is does the market make paying up a mistake or is walking away a mistake today? It is praying up a mistake. No, they are compounding the error by buying even more than what they bought. And last and not least, he's saying is taking too much risk or taking too little risk the the mistake to be made today.
They are definitely taking too much risk. Okay. So, given that what you said, I think apart from two or three three points, you've basically stuck to the left on most points. So, what is interesting to me is that in from what you've said in the Indian Indian markets, we might be walking over from a place of too much overvalued to being too overvalued to a place where we can start considering certain issues.
You can start considering issues, but the macroeconomics will not support this. Because already domestic players are overextended. For 2 years in a row, FIAs have gone out. That means the money that has come for the last 10 years has left. So, this India is not an attractive market for the West or any investor because of the simple reason, the government has been repressive in the financial sector.
The RBI has kept the rupee very high and the value of the rupee artificially low. So, the real value of the rupee should be at 105 106. And they have borrowed dollars using SBI in New York. All this will not go down well with the market. And market lookwise value and quality. I don't think quality and value are available at this market.
That is high quality prices are not available at value prices. When high quality stocks become available at value prices, you'll find FIAs coming back again. So, we might be walking over, but you think that there's still a way to go. There is some way to go, yes. Okay. So, this is what I had for you today and thank you for doing the checklist with me.
Thank you for watching Anand Talks today. I enjoyed this program and I hope you enjoyed it as well. If you did, send the video to your friends and relatives and have them take a look once again. Kindly subscribe to our channel, turn on the bell notification because otherwise you would miss the video miss the YouTube video we upload.
Shashwat is available between 5:00 and 6:30 Indian Standard Time on Instagram live to answer your questions. Do not repeat your questions. It makes it cumbersome. Shashwat Insta ID is available below. Thank you for your support for Anand Talks. [snorts]
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