Not catching falling knives, waiting for dust to settle? Howard Marks says this

The US President Donald Trump's objections to the country's treatment in global trade and his support for tariffs can be traced back as early as 1987. However, few could have anticipated the scale of the tariff increases he implemented on April 2. Although these measures were later halted for most trading partners, the tariffs remained in place for China, with a temporary 90-day reprieve granted to others.

Howard Marks of Oaktree in his latest memo "Nobody Knows (Yet Again)" said since 2008 and the other crises that he has invested through, as well as today's, he does not reach conclusions with confidence or act without trepidation.

He insisted there’s absolutely no place for certainty in the world of investing, and that is particularly true at turning points and during upheavals.  "I’m never sure my answers are right, but if I can reason out what’s most logical, I feel I have to move in that direction," he said.

Marks said one needs a good sense for the probability that the forecast is correct, since not all forecasts are created equal. 

Given the current circumstances, he noted that it must be acknowledged that forecasts are even less reliable than usual. The primary reason is the sheer number of unprecedented and unpredictable factors at play in this situation—factors that could potentially lead to the most significant economic development of our lifetime.

"There’s no such thing as foreknowledge here, just complexity and uncertainty, and we must accept that as true. This means that if we insist on achieving certainty or even confidence as a precondition for action, we’ll be frozen into inaction. Or, I dare say, if we conclude we’ve reached decisions with certainty or confidence, we’ll probably be mistaken," he said.

Marks said deciding not to act is not the opposite of acting; it’s an act in itself. The decision to not act – – to leave a portfolio unchanged – should be scrutinised as critically as a decision to make changes.

"The old saws that are the refuge of terrified investors – “we’re not going to try to catch a falling knife” and “we should wait for the dust to settle and the uncertainty to be resolved” – cannot in themselves be allowed to determine our behavior," he said. 
 
Marks said given Trump’s tactical focus, it is important to bear in mind that absolutely everything is subject to change. 

"It shouldn’t surprise anyone if he extracts concessions and declares victory . . . or if he responds to other countries’ retaliation by escalating further," he warned. 

Golden credit card
The global community's longstanding confidence in the U.S. economy, legal system, and fiscal reliability has effectively granted the United States a "golden credit card" — one with no spending limit and no immediate bill to pay. This unique position has allowed the country to run budget deficits for each of the past 25 years and in all but four of the last 45, including annual deficits exceeding $1 trillion over the past five years.

In essence, the US government has consistently spent beyond its means, relying on borrowed funds rather than revenues from taxes and fees. The result is one of the most troubling aspects of the US fiscal landscape: a national debt exceeding $36 trillion and a pattern of irresponsible financial management in Washington that has contributed to its growth, Marks said.

Given the prevailing political and fiscal dynamics, Marks said it difficult to expect a sudden shift toward balanced budgets and responsible governance. This raises a pressing question: how much longer can US rely on that golden credit card?

Marks said he considers the tariff developments to be what soccer fans call an “own goal” – a goal scored for the other side when a player accidentally puts the ball into his own team’s net.

Asian stock markets gained up to 8 per cent today after the Trump tariff pause. Japan's Nikkei 225 jumped 8.67 per cent to 34,450. Korea's Kospi added 5.69 per cent to 2,424.08. Australia's S&P/ASX 200 climbed 4.69 per cent to 7,721. Hong Kong's Hang Seng and mainland China's Shanghai Composite index rose 1.70 per cent and 0.94 per cent respectively.