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We just experienced the biggest two-day crash of all time, wiping out over $10 trillion at some of the world's biggest companies, and just one day later the stock market rebounded historically fast. And all this because of the toll that Donald Trump first imposed and then paused. Even Howard Marx, who has experienced quite a lot in almost 50 years on the stock market, describes the current situation as the biggest change of his career.
In a Bloomberg interview, Marx commented on the tariffs and the current situation on the stock market, also answering the question of whether one should be fearful or greedy. For those who do n't know him, Howard Marx is one of the most respected investors worldwide. However, he is not particularly known for his investments, but for his memos and interviews in which he shares in-depth analyses of the markets.
Warren Buffett is also a huge fan of his memos and once said that when I see memos from Howard Marx in my email, they are the first thing I open and read. And the fact that his opinion is valued is demonstrated by the fact that an interview on Bloomberg has already been viewed over 500,000 times in less than a week.
I also found the interview really exciting and I definitely did n't want to withhold his latest insights from you . And that's why I would say, let's just get started and listen to what Howard Max has to say about the jail cell imposed by Donald Trump . seen my care you know from free trade world trade and globalation to this syesicant restrictions on trade in every dire uh and step towards isolation for the unit states I believe that the 80 years world war have been the best economic in history of man and one of the major reasons was the growth of trade and I think that we have truly had a rising tide that lifted all boats and and trade was a big part of that and everyone in the audience should understand the role of trade.
It 's quite astonishing that an investor who has been on the stock market for almost 5 decades says that this is the biggest change of his career. And the fact that the announced tariffs will be of historic proportions, if they are indeed imposed , can also be seen in the following chart. The graph shows the average US tariffs on goods from abroad since 1890.
In 1934, the Reciprocal Trade Agreements Act was passed, and tariffs subsequently fell sharply and have remained relatively low ever since, mostly below 5%. And low tariffs and free trade were one of the reasons why the economy boomed and stocks rose. And that could change now. According to current forecasts from Fitch Ratings, tariffs could rise to 22% in 2025, which would be the highest level in 100 years.
This is absolutely insane, and of course it's causing displeasure and a lot of uncertainty for both Howard Marx and the stock market . But it 's clear that this creates uncertainty. In my opinion, a change in US policy away from globalization and towards complete isolation not only affects and harms the US, but the whole world.
We live in a world where countries freely trade with each other. But if everyone now builds barriers and the USA begins to withdraw from the global community, there will be consequences. The beauty of free trade is that different countries have different strengths. Italy makes good pasta and Switzerland makes luxury watches, simply because they are good at it.
When these countries trade with each other, everyone benefits more than if each country tried to do everything on its own. And that's why Trump's announced tariffs are viewed so negatively all over the world. And the penguins and sea lions are getting quite nervous, too. However, cases are not only a problem because they destroy relations between different countries, but also because they bring with them an undesirable effect: high inflation.
If we hadn't bought our uh TV sets and appliances from abroad in that 25ye period at declining prices, what would inflation have been? Ultimately, it doesn't really matter who has to pay for the costs . Ultimately, it's about higher costs, and if costs rise, then inflation will also rise again, and the isolation of the USA and higher inflation will of course also have consequences for the stock market.
It has developed extremely well over the last 100 years, also due to globalization and free trade . But what returns can we expect in the future ? Here too, we simply want to get Howard Marx's opinion . The equity ratio today is probably 19. The average return has been 16. So we can say that when the equity ratio averages 16, the average return is 10.
But when the equity ratio is 19, if you look at history, you probably made, let's say, 1 to 6% or 2 to 7% a year, but certainly not 10%. Howard Mark is pointing out something very important that is often overlooked when making calculations for the future and assuming that you can continue to aim for 10% per year simply by buying the S&P 500.
Even after the sometimes rather drastic price drops we have seen, or are still seeing, the P/E ratio of the S&P 500 is above its historical value. Although the P/E ratio has fallen from almost 30 in February to around 20, the median and average P/E ratios are between 16 and 18. And when the market is historically overvalued, one shouldn't rely on historical returns, because with every increase in the P/E ratio, the potential future return also decreases.
As Howard Marx so aptly put it, you get what you pay for . And that also applies to individual stocks. Just because a stock like Tesla has fallen by 50% does n't mean it's necessarily a buy. But nevertheless, Marx is by no means pessimistic at present. Because when the P/E ratio falls, as is currently the case, the probability of a higher return in the future also increases.
And that brings us to the crucial question of whether one should be fearful or greedy now. You know what you have to say Bloomberg's offices uh you have to think in terms of your neighbor um the department store. Blooming Dales. Bloominges just put everything on sale. Prices have come down for the S&P uh 8% in the last two days and much more in the last six weeks.
That encourages people to think about buying; will they go down further? Nobody knows if the prices are fair. Nobody knows. One should see an opportunity in the current sale. Stocks are simply on sale right now, and in my opinion, that's the only correct perspective one should have on the current situation.
Because, as someone else nicely put it, if you bought a stock or an ETF when the price was €100, then it makes absolutely no sense now, when the price is at €90 or even €80, to boycott it or say, no, that's too risky for me now . That is the completely wrong approach, at the very least. And that's very important if you're approaching this in the long term .
If your investment horizon is less than 5 years, things may look very different for you. But if you are patient and don't need the money again in 3, 4 or 5 years, then now is probably a good time to acquire more shares at lower prices. Perhaps we could even consider the advice of another stock market legend .
As Andre Costulani once said, buy stocks, take sleeping pills and don't look at the papers again. After many years, you will see that you are rich. Of course, this is no guarantee that you will become rich in many years, but the basic idea is still correct. Perhaps now is a good time to add a good and cost-effective ETF, or if you prefer, quality stocks that are still growing strongly, to your portfolio and simply leave them for many years.
And that 's exactly what I'm doing right now. I further increased my ETF, which I already invest in every month, and also bought a few more shares of growth stocks like Amazon and Booking.com. What I won't do now, however, is simply go all in . Because I have no idea if it goes even further down, or when the bottom will be reached.
That 's almost impossible to say anyway. But an unjust Donald Trump makes things significantly more complicated. Ultimately, everyone must decide for themselves whether the decline in stock prices so far is appropriate, insufficient, or even excessive. And depending on the conclusion reached, one should either fully commit or wait a little longer until things adjust or stabilize somewhat.
In any case, I believe that in such times one should be a little more greedy than fearful, without, however, going all in with all the gear. But now I'm interested in how you proceed. Are you already buying more or are you still comfortably watching the whole thing from the sidelines? Also, please let me know what you think of the format or the video here .
Was the insight into Howard Marx's interview exciting or rather annoying, because most of the video was in English? Be sure to let me know your opinion in the comments, and if you liked the video , don't forget to give it a like and subscribe to the channel. Thanks for watching and see you next time. Ciao.
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