FORTUNE -- Howard Marks, the founder of the $79.5 billion Oaktree Capital, sent out his latest 13-page investment letter last week. The missive, titled "What's Behind the Downturn," lays out how a confluence of current events has weighed on markets and caused some of the most volatile trading days we've seen in years. (In August, for example, the Dow either rose or fell by at least 400 points for four days in a row.)
Marks notes that financial markets unravel when presented with more than one problem at a time, citing as examples 1990 (the LBO collapse, the Gulf War, the government crusade against Michael Milken), 2002 (9/11, the tech collapse, Enron), and 2008 (the mortgage meltdown, the structured finance collapse, the collapse of the banks).
And in Marks' estimation, this downturn is no different. He points out that this summer Wall Street had to digest the "bitterly disappointing" debt ceiling game of chicken, Standard & Poor's downgrade of the U.S. government, worries in Europe, and increasing evidence that China is not an unstoppable economic miracle.
Little wonder that Marks predicts a sluggish recovery and an overhang of low consumer confidence (but not a double dip recession); and he's reluctant to go too far down the credit quality curve or take on leverage.
But he adds that that the market swings were more a change in psychology than in fundamentals, and that sentiment may have become too negative.
"With the strong flight to the perceived safety of Treasurys and the pronounced cheapening of everything else, the dearth of bargains that I bemoaned a few months ago is much eased," Marks writes. "Nobody waves a banner when assets have gotten cheap enough, but it's incumbent on investors to recognize things like these and react appropriately, rather than follow the herd."
Marks sees bargains and buying opportunities in fixed income, as high-yield bond mutual funds sell into the panic and the spread between junk bonds and Treasuries widens well above historic averages.
So while he is still incredibly cautious on the U.S. economy, Marks writes: "Thus right now I would be a better buyer, albeit in moderation since fundamentals still pose threats."
Wall Street believes that its cool response and analytical reasoning will help alleviate any major panic on Monday. But panic is at its core irrational, and trying to fight it can be futile.
By Cyrus Sanati, contributor
FORTUNE -- Wall Street is jumping to the defense of the United States government following Standard & Poor's decision Friday night to downgrade its sovereign debt. The financial community is circling the wagons in an MOREAug 7, 2011 9:29 AM ET
A recession is "clearly a possibility," the bank that until recently was America's biggest booster said in cutting its economic growth forecasts yet again.
Goldman Sachs, which just seven months ago was the loudest voice for a stronger than expected U.S. recovery, now expects U.S. output to creep ahead at a snaillike 1.5% clip in the second quarter and a less than vigorous 2% in the third.
Friday's call stands as quite a comedown MOREColin Barr - Jul 18, 2011 6:38 AM ET
The congressional Republicans aiming to blow up the government took us past a scary new milestone Wednesday.
Moody's put the United States' triple-A credit rating on review for a possible downgrade, citing a "small but rising risk of a short-lived default."
The move comes after talks broke down between the White House and Republicans in Congress over raising the U.S. debt ceiling. One so-called Republican leader, Sen. Mitch McConnell of Kentucky, said progress MOREColin Barr - Jul 13, 2011 5:22 PM ET
How tepid is the U.S. economy?
So lukewarm that economists at Goldman Sachs last week cut their economic growth forecast for the second time in a month, only to warn a few days later that "we already see downside risk to that estimate."
Goldman now sees the U.S. economy struggling to limp forth at a 3% pace in the second quarter, down from 3.5% just three weeks ago and 4% at the MOREColin Barr - May 31, 2011 5:18 AM ET
It looks like Europe is about to get interesting again, and not in a good way.
Moody's warned Wednesday it may downgrade Spain's credit rating, citing its heavy refinancing needs in coming months, the weakening state of its small banks and the debts run up by local governments.
The comments sent European stocks modestly lower and weakened the euro against the dollar. It fetched $1.33 Wednesday morning, down from $1.34 a day MOREColin Barr - Dec 15, 2010 7:12 AM ET
Moody's is the latest to warn that the tax deal could imperil the United States' fiscal position.
The rating agency said in a report Monday that last week's agreement between the White House and congressional Republicans should bolster economic growth in the next two years – but at the expense of the nation's already perilous budget position down the road.
The agreement to extend the Bush tax cuts for two years and MOREColin Barr - Dec 14, 2010 9:09 AM ET
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