Recap 2014-12-19 : Howard Marks says Buy Credit, Weekly Charts


Howard Marks Concluding Paragraph from his latest letter:

For the last 3.5 years, Oaktree’s mantra has been “move forward, but with caution.” For the first time in that span, with the arrival of some disarray and heightened risk aversion, events tell us it’s appropriate to drop some of our caution and substitute a degree of aggressiveness.

The S&P PE ratio did not break and continues to move higher:

The stability in the 5y segment of the US curve continues to be draw interest. It has been broadly range bound for a year and a half now:

But the momentum in the 30 may reverse soon. Yields have bounced off of support levels stretching back to 2011:

And a similar assessment could be made for oil:

If oil does stabilize here, or bounce, there may well be a negative impact on the dollar. The chart below shows EURUSD in white and WTI in orange over the past 5 years. Despite the pickup in shale production over the past few years, the correlation is not casual:


  • UK GfK Consumer Confidence declined to -4 vs -1 exp and -2 prev
  • German GfK Consumer Confidence improved to 9.0 vs 8.8 exp and 8.7 prev
  • Canada Core CPI declined to 2.1% vs 2.4% exp and 2.3% prev
  • NZ Business Confidence declined to 30.4 vs 31.5 prev
  • Bernanke sees US growth accelerating in 2015 and thinks the Fed will “look past the drop in headline inflation.”
  • The ECB is considering LSAP structural adjustments to try and win over Germany. The ECB may require central banks in countries that would benefit the most from a QE program (Greece, Portugal) to set aside extra provisions to cover potential losses from bond purchases. Some worry that such conditions could limit the effectiveness of LSAP. “Although a release of new money to buy state bonds appears all but certain, how it will happen remains fluid.” Reuters


  • Mon: US Existing Home Sales, EU Consumer Confidence, NZ Trade Balance
  • Tue: CanadaGDP, US Durable Goods Orders, New Home Sales, Core PCE
  • Wed: US Jobless Claims,
  • Thu: Christmas, Japan Housing Starts, Jobless Rate, CPI

2 thoughts on “Recap 2014-12-19 : Howard Marks says Buy Credit, Weekly Charts

  1. How is usd related to oil price? Supply issues aside, I thought what happened this year was strong usd made oil more expensive in other currencies, putting pressure on demand. However, this hardly makes sense because oil cheapened in Eur and jpy terms this year as well.

    1. Oil is governed by its own supply and demand dynamics. My view is that this year’s move is mostly a supply driven response.

      Despite the increase in shale oil production and exports, the US continues to be a net importer of petroleum products. As a result, changes in oil prices have a direct impact on the trade balance, and via that, on the currency. There may be a small oil beta to the USD, but the reverse is much stronger.

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