Seasoned investors know how to detect historical cycles and patterns in markets, and some would suggest that we’re near the end of a late-stage bull cycle. Others aren’t yet convinced that we’re near the finish line – or perhaps they’re simply not watching for the signs that all is not well in the markets.
We look to the world’s foremost experts for analysis on these issues, and we’re proud to say that Crush the Street had the opportunity to speak with Mark Yusko, the Founder, CEO, and Chief Investment Officer of Morgan Creek Capital Management, located on the worldwide web at MorganCreekCap.com.
Prior to forming Morgan Creek, Mr. Yusko was President, Chief Investment Officer and Founder of UNC Management Company, the Endowment investment office for the University of North Carolina at Chapel Hill, from 1998 to 2004.
Throughout his tenure at UNC, he directly oversaw strategic and tactical asset allocation recommendations to the Investment Fund Board, investment manager selection, manager performance evaluation, spending policy management and performance reporting, with total assets under management at $1.5 billion.
Courtesy: Mark Yusko
Prior to that, until 1998 Mark Yusko was the Senior Investment Director for the University of Notre Dame Investment Office, where he joined as the Assistant Investment Officer in October of 1993; in that capacity, Mr. Yusko worked with the Chief Investment Officer in all aspects of Endowment Management.
Highly active in the financial community, Mark Yusko is an advisory board member of a number of private capital partnerships and alternative investment programs, and has served as a consultant on alternative investments to a select group of institutions.
Moreover, Mr. Yusko is an Investment Committee member of the MCNC Endowment, President and Chairman of the Investment Committee of The Hesburgh-Yusko Scholars Foundation at the University of Notre Dame, and President and Head of the Investment Committee of the Morgan Creek Foundation.
Given how fragile and volatile the equities markets seem to be lately, Crush the Street wanted to get Mr. Yusko’s perspective on what we’re seeing now and how we can position ourselves for what’s to come. According to Mark Yusko, what we have now is part of a historical cycle: liquidity drives markets and economic cycles, and the Fed has put a bullet in the head of this cycle by raising interest rates last year.
Once that happened, we’ve seen negative surprise after negative surprise, according to Mark Yusko, with one recent instance being the dismal U.S. retail sales numbers that came out. This will force a downward revision of GDP, and it’s yet another indication that the cycle is coming to an end and it’s time for investors to be more defensive.
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Courtesy: Mark Yusko
As Mr. Yukso observes, valuations today are very similar to the valuations we saw in 2000 as well as in 1929. Furthermore, according to Mark Yusko, we’re in the second most overvalued equities market in history – and while stocks could certainly become even more overvalued, the fact is that stocks have only been more expensive than they are today during 2% of the history of the markets.
The major difference between today and 2008, according to Mark Yusko, is that this time the central bank has taken another tool out of their toolbox, in the form of quantitative easing. But we’ve seen this before: the government used quantitative easing in the 1930s to attempt to combat the economic downturn that started in 1929.
Here’s how that turned out: they kept quantitative easing in place for about six years, according to Mark Yusko, until 1937 – then, when they tried to raise interest rates from zero to a measly 0.25%, they turned a garden-variety recession into the Great Depression.
Courtesy: Mark Yusko
And so, we can see similarities between 1929 and today: a quantitative easing experiment, a trade war, and immigration issues, just to name a few. There are also similarities to 2000-2001: the tech bubble and burst, followed by a relief rally, which is how bubbles typically end – the market rolls over, and then there’s one final bounce in which everything feels like it’s going back to normal, before the big crash happens.
We can see this played out in the numbers: in 2001, we had three 20% rallies on the way to being down 14% for the year. And just as we had a shallow recession in 2001, Mark Yusko expects that we’ll have a shallow recession this year, which will set up a really bad year: 2020, when we’ll have a debt crisis.
This was a powerful and thought-provoking interview, so don’t miss a moment of Crush the Street’s discussion of the economy and markets with Mr. Mark Yusko. And for more information on Mr. Yusko’s company’s targeted investment programs, feel free to visit Morgan Creek Capital Management at MorganCreekCap.com.
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