top of page

Understanding this market

B. Chase Chandler

Over the past few days, I have thought a lot about how to frame the path forward. Imagine my surprise when Oaktree’s Howard Marks released a memo Tuesday (March 31) laying out the situation: Which way now? This is a must read for all serious market participants or anyone wanting to understand the underlying economic fundamentals.


As optimistic as we would like to be, the economic data coming in has already reached record levels, and it will get much worse. In early March, we began moving out of airline and consumer discretionary firms with higher operating leverage, and into firms with high cash-to-debt ratios which we believe can make it to the other side. Our performance year-to-date can be seen here.


Though the first few weeks of March, the Federal Reserve announced previously unimaginable monetary stimulus, first to backstop repo and money markets. Then they moved to buying municipal and corporate bonds, all in an effort to keep prices from falling too far too fast. We worry the consequences in certain credit markets are only being pushed down the road. A decade of low interest rates has (1) encouraged excess leverage and (2) pushed investors out on the risk curve. One of the implicit goals of monetary intervention was to get investors out of cash in order to foster growth. Now we are seeing in real time the problems with such policy.


Markets surged a little under twenty percent over the three day period from March 24 to 26. Commentators said pension rebalancing was driving up markets. Our sense is, given the unprecedented environment, many respectable pensions have not been automatically rebalancing. Some pensions were equity buyers in the last week of March, and even more so indexed ETFs. Other big buying came from short-covering and retail/wealth advisors.


Initial jobless claims for the week ending March 21 came in at 3.28 million. March 28 claims are due Thursday, April 2 (Figure 1). The median estimate is 3.5 million. This would put the two-week total at 6.78 million. Continuing claims estimates are expected to reach nearly 8-10 million by next week. To put this in perspective, total continuing claims through 2008-09 reached a high of 6.62 million (Figure 2).


Markets will continue bouncing around, but keep in mind, a quick recovery is unlikely. The fragility of the system has been exposed. We are already seeing the initial signs of default and debt restructuring programs. Many more will be underway within the next few weeks. We are focused on assessing the fundamentals, which prices will eventually converge to.


Figure 1


Figure 2

Comments


1616 Westgate Circle, Ste 202  |  Brentwood, TN 37027

©2018-2024 Canterbury Tollgate. Canterbury Tollgate ("CTG") is a dba for Weise Risk Advisors LLC, a registered investment adviser. Information found on this website may not be used without expressed written consent from an authorized officer of The Company. The information on this website has been prepared by Canterbury Tollgate, a dba name for Weise Risk Advisors, LLC, collectively known as "Canterbury Tollgate", "Canterbury", or "CTG". All investor letters, memos, and other content found on CTG's website or in other materials related to CTG are intended solely to be informative. Nothing found herein should be construed as investment advice, nor as an offer to buy or sell, nor as a solicitation of an offer to buy or sell, any securities, investment partnership interests, or other financial instruments. By accessing this website, you understand any content herein is not an offer to buy or sell any security or as a solicitation to invest with CTG. Furthermore, you agree that you access all content herein at your own risk. You or a representative acting on another entity's behalf, agree to hold harmless Canterbury Tollgate, its officers, employees, and any other associated parties. You agree that by accessing information herein, you possess adequate capital markets and investment-related sophistication to fully comprehend and assess analysis, views, and opinions. You further agree that you will not communicate the contents of reports and other materials on this site to any other person unless that person has agreed to be bound by these Terms of Use. If you access this website, download or receive the contents of reports or other materials on this website on your own behalf, you agree to and shall be bound by these Terms of Use. If you access this website, download or receive the contents of reports or other materials on this website as an agent for any other person, you are binding your principal to these same Terms of Use.

bottom of page