“When I see memos from Howard Marks in my mail, they’re the first thing I open and read.”
Warren Buffett is one of the greatest investors of all time. But even the Oracle of Omaha follows Howard Marks.
Marks founded Oaktree Capital Management in 1995. Since then, his funds have returned 19% annually… after fees.
And he’s not buying high-flying tech stocks. He buys distressed debt and other value investments.
A 19% return on fixed-income investments is incredible. That’s why Oaktree is one of the biggest asset managers on the planet… with over $80 billion under management.
And Marks isn’t a recluse like some other investment gurus. He writes a bi-monthly letter to share his views of the market with investors.
They’re required reading at Palm Beach Research Group headquarters.
Buffett isn’t the only famous investor who’s a fan of Marks. Seth Klarman, John Bogle, and Jeremy Grantham follow his writings, too.
Big investors care about his opinion. That’s why we listen to him. And he recently made some big news…
Back in July, Marks wrote a letter highly critical of cryptocurrencies. He called them “imaginary currencies.”
But less than two months later, Marks did an about-face. He now says bitcoin is as much a currency as the U.S. dollar.
Marks’ late acceptance of bitcoin as “real” money is a signal that cryptocurrencies are emerging from the underground and becoming mainstream.
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An Initial Skeptic
In his July 26 letter, Marks touched on many subjects. But the most controversial was his stance on cryptocurrencies.
Like most old men, he avoided cryptocurrencies because he considered them “not real.”
Marks also lambasted Ethereum because a 21-year-old college dropout started the cryptocurrency. (Ethereum is the second-biggest cryptocurrency by market cap, behind bitcoin.)
He failed to mention that some of today’s most successful companies—including Microsoft, Apple, Google, and Facebook—were all started by dropouts.
But Marks wasn’t done…
He compared bitcoin’s price rise to some of history’s greatest bubbles. He also said serious investors would never buy it.
Serious investing consists of buying things because the price is attractive relative to intrinsic value. And Bitcoin has no intrinsic value—only what users think it’s worth.
According to Marks, cryptocurrencies were nothing more than a fad.
To those of us in the crypto space, those are fighting words.
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Marks’ Enlightenment
After his July letter, people inundated Marks with emails telling him his view on bitcoin was wrong.
The overwhelming outcry made him take a second look.
In his September 6 memo, Marks acknowledged that he now considers bitcoin a currency.
When I first responded to comments on the memo—even before my recent enlightenment—I found myself admitting that much of the criticism I had leveled at Bitcoin is applicable to the dollar as well.
Whereas I said Bitcoin “isn’t real” because it has no intrinsic or underlying value, that’s certainly true of the dollar and other fiat currencies: there’s nothing behind them either. You can no longer exchange them for gold (and what is gold, anyway? But that’s another subject).
In fact, government-issued fiat currencies are accorded value only because of a government edict. Why, the fans of Bitcoin ask, is such an edict superior to an agreement among people to accept a non-government-issued currency? Fiat currencies have value simply because of faith in the governments that issue them. If enough people believe in it, why can’t faith in Bitcoin suffice? If you consider the properties of fiat currencies, these are darn good questions.
Marks is right.
As we’ve been telling you for almost two years, bitcoin is a currency. Bitcoin (or some other cryptocurrency) will be the money of the future.
And now the investing establishment is getting behind this concept.
Going Mainstream
Few people are more entrenched in the investment world than Howard Marks. He’s one of the most widely read and respected investors in the industry.
(To be fair, even though Marks now equates bitcoin to a currency, he said that doesn’t necessarily make it a good investment… He also said he doesn’t know where the price of bitcoin will go… Or if bitcoin will even be the cryptocurrency that wins out.)
The establishment is catching on. And when the big money guys start investing in cryptos, they will really take off.
If you haven’t bought in yet, now’s a good time. But remember to keep your position sizes small.
Regards,
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. If you’d like to read Marks’ memos for yourself, click here for his archive at Oaktree Capital.
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CHART WATCH
The Spreading Pension Crisis
Hartford, Connecticut, might be the next city to go bankrupt…
At least that’s what bond traders are saying.
As you can see in the chart below, the yield on the April 1, 2018, Hartford bond soared from 3% to 16% in September.
The fear’s founded…
Earlier this month, Hartford’s mayor sent a letter to the state government saying that if it doesn’t pass a budget… the city might have to file for bankruptcy.
He added that a well-planned bankruptcy could help the city eliminate some of its biggest liabilities: bonds and pensions.
It looks like Hartford city employees may be the next victim in America’s escalating pension crisis.
—Nick Rokke
MARKET WATCH
Wall Street’s Bullish on Nvidia: When we first recommended chipmaker Nvidia in The Palm Beach Letter portfolio in December 2015, we said this maker of “robot brains” could return 50% for early investors over the next 12 months. So far, we’re up 450% on the chipmaker. And now, Nvidia is getting even more good news. Evercore ISI is a financial analyst firm. Recently, it raised its price target for Nvidia from to $150 from $180… That’s 48% upside from its recent close. (Note: NVDA is way past our buy-up-to price, and we don’t recommending buying into the company now.)
Evercore cited the bullish outlook on the rapid growth of the artificial intelligence industry. Nvidia’s performance won’t surprise regular readers. We told you why it would be a long-term winner in January…
Bitcoin at $25,000: Tom Lee is the co-founder of market research firm Fundstrat. Much like us at the Daily, Lee is bullish on bitcoin. He recently told MSNBC that we could see bitcoin surge another 500% in the next five years. That would take the price per coin to about $25,000. “I unequivocally believe bitcoin is your best investment to the end of the year,” Lee said. Here’s the thing… Lee’s estimate may be on the low end. One bitcoin expert who we follow closely has said bitcoin could reach “$100,000… even $1 million” per coin.
Buying Property? Break Out Your Bitcoin Wallet: Kuper Sotheby’s International Realty is a Texas-based real estate brokerage firm. According to a report in online magazine Futurism, the firm has completed the first-ever sale of a real estate property using just bitcoin. The company hasn’t disclosed the home’s price. But more important, the report says, was the ease of the overall transaction. “In all of my 33 years of closing transactions, I honestly couldn’t have expected something so unique to go so smoothly,” Kuper Sotheby’s Sheryl Lowe, the buyer’s agent, said in a press release. “In a matter of 10 minutes, the bitcoin was changed to U.S. dollars and the deal was done!”
IN CASE YOU MISSED IT…
You’ll never guess what this bathrobe-wearing Cali man does to make so much money…
It’s not a home biz… He never leaves his house before noon.
And he “retired” from real work 14 years ago to his Bay Area estate.
But he still makes more money in a month than most make in a year of work—all from the comfort of his California home.
How does he do it? Click here to learn more…
