With the S&P/ASX 200 Index (ASX: XJO) today recording yet another day of gains and, once again, pushing over 6,000 points, investors will no doubt be celebrating. The ASX 200 is now more than 30% above the lows we saw in March. And there is definitely more goodwill in the markets today than fear (from where I'm standing, anyway).
But could this be the calm before another storm, aka, an ASX market crash? Or more dramatically, are we in the eye of the storm, the calm lull between 2 tempests?
Well, that's what a growing list of investing experts are hinting at. Today we've heard from 2 investing legends – Ray Dalio and Howard Marks – on the dangers they see in the markets right now.
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Experts warn of danger ahead
Dalio is the most successful hedge fund manager in history and an expert on market cycles. His fund, Bridgewater Associates is the largest of its kind with hundreds of billions in assets under management.
Marks, of Oaktree Capital, is another ultra-successful hedge fund manager, respected by investors as great as Warren Buffett.
In an article by the Australian Financial Review (AFR), it's reported that Dalio's Bridgewater is warning of a 'lost decade' for global share markets:
"Even if overall profits recover, some companies will die or their shares will devalue along the way. Left with lower levels of profits and cash shortfalls, companies are likely to come out on the other side of the coronavirus more indebted."
It's this indebtedness that Bridgewater is warning could weigh on share market returns for years to come.
In separate reporting by AFR, the publication also quoted Howard Marks. The investor warns that the unprecedented intervention by the US Federal Reserve is the only thing currently pushing markets higher:
"[Investors have] no reason to believe the Fed insists on good value, high prospective returns, strong creditworthiness to protect it from possible defaults, or adequate risk premiums…The higher the market went, the more people believed that it was the goal of the Fed to keep it going up, and that it would be able to."
Marks notes that passive investments and index exchange-traded funds (ETFs) are exacerbating the problem. Marks said they 'just buy everything', they are not value-sensitive and do not bring price discovery to the table.
What should investors make of these ASX market crash warnings?
I think all investors should take the remarks of these 2 seasoned and experienced investors seriously. Thus, I think we may see adverse consequences in the American financial markets from its government's intervention. If this was to occur, it would almost certainly flow into ASX shares.
Therefore, I think the importance of investing prudently and at prices that make sense is as high as ever – as is keeping some cash on the sidelines.
