Cockroaches in the Coal Mine

In this episode of "The Memo by Howard Marks," Marks discusses the recent bankruptcies of First Brands and Tricolor, drawing parallels to the "cockroach in the coal mine" analogy, suggesting potential underlying issues in the sub-investment grade credit market. He reflects on the cyclical nature of financial markets, particularly the shift in attitudes toward risk, and introduces the concept of the "bezel," or fraudulently inflated wealth, which tends to increase during economic booms due to relaxed vigilance. Marks analyzes the First Brands situation, highlighting red flags and the importance of thorough credit analysis, while emphasizing that defaults are a normal part of sub-investment grade investing, and concludes by stressing the need for prudence and second-level thinking in credit analysis, especially in light of the potential for errors made during the recent period of economic growth to surface.