The music is playing and we ought to dance. I think this is what Howard Marks' memo is saying.
I was rewatching Margin Call yesterday: fabulous drama.
And what struck me was the dichotomy between ex-post and ex-ante.
Back in 2006-7; the overwhelming majority was aware that 'this is too easy' and that any mention of 'risk' was rubbished away. There was genuine complacency.
Just like 1999, where anybody who got out before the bubble burst, felt left out, dumb and cheated.
That, even in Margin Call - once the 'company' was done selling its assets, if the market recovered and continued chugging along: everyone felt like a fool.
"May be there is some oil to be found in hell".
Ex-post however, everyone sees it as alarmingly obvious; "if I was there then, I would have surely figured it out and gone into cash or sold short..."
And yet, here we are.
Today:
"I own great companies. So what if some of them are at 40x PE"
"Well, yes. But I have 4% in cash, and look at these bargains in the other corner of the market"
As on Nov 25: Mag 7 total + Oracle + Broadcom : All 9 combined: $23.692T ( of 67.5 T US total)
As on 2019-12-31: 5,448.13 (of 33.9 T US total)
The magnitude of this is alarming.
From the movie:
"It's just money; it's made up. Pieces of paper with pictures on it so we don't have to kill each other just to get something to eat. It's not wrong. And it's certainly no different today than it's ever been.
1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987—Jesus, didn't that **** me up good—92, 97, 2000 and whatever we want to call this (2008).
It's all just the same thing over and over; we can't help ourselves. And you and I can't control it, or stop it, or even slow it, or even ever-so-slightly alter it. We just react."
So, 2020 got a COVID crash; but the recovery was mad quick; there was a bit where the end of ZIRP took down a few big banks in the US, and nobody really cared.
My point being:
The attitude towards risk is - more is good.
There is complacency towards the downside.
