REGULATORY WONDERLAND — THE DISCONNECT BETWEEN FUNDAMENTALS AND VALUATIONS

COVID-19: Summary of current state of the Markets

For anyone wondering about the current disconnect between the valuations and the underlying fundamentals there is a brilliant piece from Howard Marks just published.

After the recent repricing of assets (including bonds) and the FED announcement related to 2.3 trillion in stimulus including High Yield Credit the basic disciplines we learned about financial markets seem all broken. While the action was necessary it does raise the question of the ‘limitless’ aspect:

Howard Marks also goes into questioning the consequences of excess borrowing and disappearance of healthy fear of loss that makes capital allocation efficient:

For the investors still betting on a quick recovery the memo also food for thought related to the return to a ‘new normal’:

Here is the link to the full memo.