The Index vs Main Street

I was reading some of Howard Marks recent memo and articles and given at how fast the markets changed these days, the tone of the memos do differ and have changed over the past few days.


a)  ‘The world is more than 15% screwed up’: Billionaire investor Howard Marks warned the recent stock rally doesn’t reflect reality, dated 21 April 2020 (read here). To quote: “We’re only down 15% from the all-time high of February 19,” the investor said, referring to the S&P 500. “It seems to me the world is more than 15% screwed up.”

b) Knowledge of the Future dated 14 April 2020 (Read here). To quote the end of this memo: The market seems to have passed judgment with regard to the future.  U.S. deaths have reached 23,000 and continue to rise.  Weekly unemployment claims are running at 10 times the all-time record.  The GDP decline in the current quarter is likely to be the worst in history.  But people are cheered by the outlook for therapies and vaccines, and investors have concluded that the Fed/Treasury will reduce the pain and bring on a V-shaped recovery.  There’s an old saying that “you can’t fight the Fed” – that is, the Fed can accomplish whatever it wants – and investors are buying it.  Thus, the S&P 500 has risen 23% since its bottom on March 23, and there’s little concern about the retrenchments that typically have been part of past market rallies. But Justin Beal, my artist son-in-law, is mystified.  “I don’t get it,” he told me on Saturday.  “The virus is rampant, business is frozen, and the government’s throwing money all over the place, even though tax revenues have to be down.  How can the market be rising so strongly?”  We’ll find out as the future unfolds.”

b) ‘I no longer feel defense should be favored’: Billionaire investor Howard Marks urges clients to take advantage of bargains in the market dated 8 April 2020.  (Read here) To quote: “The “uncertain, low-return environment” seen throughout the financial sector before the coronavirus pandemic tanked markets has given way to one rife with value, he said. “I no longer feel defense should be favored. “

c) Calibrating dated 6 April 2020 (Read here). To quote the end of this memo: “The bottom line for me is that I’m not at all troubled saying (a) markets may well be considerably lower sometime in the coming months and (b) we’re buying today when we find good value,” he wrote. “I don’t find these statements inconsistent.”


The stock markets has kind of rebounded from the 23 March 2020 lows. The S&P 500 currently is only 16% lower from the Feb 2020 highs.


The STI is around 21% lower from the Feb 2020 highs.


However, like what Howrd Marks mentioned, the world is more than 15% (or in this matter 16% to 20%) screwed up.

In fact, many of the small / medium sized businesses are hurting and are closed. Kevin O’Leary (one of the co-host in the show “Shark Tank”) has a no. of mom and pop /start-up businesses and he estimated recently in 17 April 2020 that about one third of these business will go out of business.

  • It’s Chaos out there: ‘Shark Tank’ co-host on post-coronavirus path for businesses  (watch here)

In Singapore, we will be seeing a lot more liquidation and winding up of companies.

“The number of companies and businesses that ceased operations in the first three months of this year jumped 78 per cent to 18,923, from 10,611 in the same period last year.

The number of companies that went into liquidation doubled in the first three months of the year, from 119 companies during the same period last year.”

  • Pandemic deals fatal blow to struggling businesses (read here)

However, we need to know that the index does not represent the whole picture. The constituents (in STI and S&P500) are these big-cap companies (typical multi-billion). Many of them are still in operation (though not fully). Yes the three big local Singapore banks are hit by the oil crisis as well (eg. Hin Leong exposure).

  • Big three banks’ $871.5m Hin Leong exposure adds to loan pressures (read here)

The 3 banks alone take up more than 35% weightage of the Straits Times Index.

The possibility of these banks going bust is very low.


However, SMEs contribute to 65 per cent of Singapore’s employment, while in 2017, SMEs added a nominal value of $196.8 billion, or 49 per cent, to the economy. (read here)

And many of them will be worse hit by the pandemic.

Looking at the index, it is indeed not a true reflection of what is happening on main street.

About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat. Check out my Facebook Page:
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