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Makes No Sense!


This week a name-brand retailer Nieman Marcus has its final call by filing for bankruptcy. Is this the tip of the iceberg? Not to mention J. Crew followed suit and the highest unemployment since the Depression.


"The virus is rampant, business is frozen, and the government's throwing money all over the place, even though tax revenues have to be down. How can the market be rising so strongly?" We'll find out as the future unfolds." A quote from Howard Marks, founder Oaktree Capital Memo April 2020.


Mr. Marks floated a warning sign in the same memo. I quote, Thus, the argument goes, the jam the government is rescuing them from "isn't their fault," meaning the bailout isn't unreasonable. As I wrote in Which Way Now?,(March memo) I understand they aren't guilty of having ignored a likely risk. But unlikely (and even unforeseeable) things happen from time to time, and investors and businesspeople have to allow for that possibility and expect to bear the consequences. In other words, they have to think like the six-foot-tall man hoping to get across the stream that's five feet deep on average. I see no reason why financiers should bailout simply because the event they're being harmed by was unpredictable."

So what is happening? Mr. Marks makes an interesting point he writes in his April memo. "The Fed may feel all of this is essential to protect the financial system's plumbing and reduce systemic risk until the virus crisis passes. But make no mistake that the Fed is protecting Wall Street first. The goal seems to be to lift asset prices, as the Fed did after the financial panic, and hope that the wealth effect filters down to the rest of the economy." Could this be a way of helping a political party in power? ( I added this question.)


Now it is just waiting and seeing what is going to happen next. Prepare for the worst and hope for the best is my only guess.

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