The following by Howard Marx speaks to why we began hedging portfolios during the 2nd half of last year, and why our asset mix is markedly different today than it had been throughout this entire bull market. 

“You must be aware of what’s taking place in the world and of what results those events lead to. Only in this way can you put the lessons to work when similar circumstances materialize again. Failing to do this—more than anything else—is what dooms most investors to being victimized repeatedly by cycles of boom and bust.”

In terms of “what’s taking place”, I equate that to the underlying state of general conditions. Of course I did not “call” the present “correction”: What our ongoing, deep assessment of the macro environment told/tells us, however, is that the economy and the financial markets were/are showing classic signs of late-stage fragility that most investors either discount or miss altogether. The underlying debt issues — that are now beginning to show up in yield and CDS spreads — are also classic late-stage and, alas, this go-round (again) a serious credit bubble. 


In essence, under such a setup, history (I’ve been in the trenches since ’84 and have extensively studied previous market cycles) suggests that it’s only a matter of time (could still be a relatively long time btw) before the expansion ends under the weight of its own excesses, or an unforeseen negative event arrives and ushers in the end earlier than it otherwise would have occurred.


As of this moment, in terms of degree, this has been a garden variety correction that would show as the tiniest blip on a long-term bull market chart. In terms of speed, however, it has been record breaking. In terms of where we go from here, no one knows, but present conditions do not have us at all sanguine like they did throughout both 2018 corrections (-10% and -19.8%).