I've just been rereading Marks' January 9, 2009 memo on 'The Long View'. The 18-page pdf file is an excellent overview, with hindsight, of the possibility that there may be smaller bubbles superimposed on a much longer term underlying bubble - like shorter waves on top of longer swells on the ocean. Here is a bit of concluding text from the Jan 2009 newsletter:
At times investors will be too risk-tolerant, and at others they’ll be too risk-averse.
They’ll forget to inquire skeptically after things have gone well for a while, just as they’ll
ask too many questions and hesitate too much when recent events have decimated
securities prices (and investors’ psyches). As little as two years ago, investors rushed
headlong into things, fearing that if they didn’t, they’d miss out on big gains. Now
they’re keeping their money in their wallets, saying “I don’t care if I ever make a
penny in the market again, I just don’t want to lose any more.” This change in
attitudes – throughout the financial system – is responsible for a lot of today’s deep
Over the last several decades, our economy and markets benefited from positive
underlying trends and investors were well rewarded for bearing risk. As a result, there
was rising bullishness, willingness and expansiveness. When these trends reached
unsustainable excesses, they were corrected with a vengeance. I’m now of the opinion
that not only will short-term economic cycles of boom and bust repeat regularly, but
also that favorable long-term trends are bound to see a recurrence of this sort of
occasional massive pullback . . . at that moment when the passage of time has erased
all memory of past corrections and taken investor behavior (and thus asset prices)
to unsustainable highs.
Buoyant, decades-long up-trends and their explosive endings are the inevitable
results of the tendency of human nature to go to extremes. Hopefully the current
bursting of the long-term bubble will end within the next few years, and hopefully the
next iteration is another 30, 50 or 70 years away. This one’s providing enough
excitement for a lifetime.