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Circle of Competence Issue #38

Quote of the week: "After all, you only find out who is swimming naked when the tide goes out." - Warren Buffett, 2001 Shareholder's Letter


Back in week 33, I discussed the current market cycle and general thoughts on where we are in the cycle after reading Howard Marks' latest memo. This week, I wanted to update the points from Marks' letters with a few more gleanings that I took note of this week.

- In the Real Vision interview with Kiril Sokoloff, Stanley Druckenmiller makes some very compelling points around deteriorating fundamentals in the corporate debt markets and has positions on currently that are effectively a directional bet against certain sectors of the markets. In fact, he has been trying to find a way to be short various sectors of the market since this July. Druckenmiller is one of the greatest investors of all time and in fact has never had a down year in 30 years of money management. When someone of his stature speaks, I listen. Great quote around 59:45:

"Could this Tesla thing have been able to take place in any other environment in history (without this cheap abundant debt)? I don't think so. It is just ridiculous... But I don't look at it so much as Tesla, it's just the environment."

- Bruce Berkowitz has virtually half his fund in cash at Fairholme Funds. This speaks volumes.

- Buffett just bought back almost $1B in stock and has $100B on his balance sheet - are there no good investment opportunities out there?

- The yield curve is 25 bps above inverting and tightening. Historically, a yield curve inversion (when the slope becomes negative) has been an excellent leading indicator of an impending economic recession.

- Marathon Asset Management's (distressed debt hedge fund) Richards is calling for recession in 2020 stemming from over-leveraged corporations.