In one of his famous “memos” released on Oct. 11, renowned investor Howard Marks (Trades, Portfolio) shared a May missive that was previously only sent to Oaktree Capital clients that was a follow up to another memo published in December 2022.
The paper, titled “Further Thoughts on Sea Change,” began with the co-chairman of the multibillion-dollar asset management firm clarifying the market changes he observed “represent a sweeping alteration of the investment environment, calling for significant capital reallocation.”
He then recapped his main arguments from the original memo, which pertained mostly to interest rates, inflation and the potential for a recession. Marks then noted he had additional thoughts to share, writing:
“To promote discussion these days, I often start by asking people, ‘What do you consider to have been the most important event in the financial world in recent decades?’ Some suggest the Global Financial Crisis and bankruptcy of Lehman Brothers, some the bursting of the tech bubble, and some the Fed/government response to the pandemic-related woes. No one cites my candidate: the 2,000-basis-point decline in interest rates between 1980 and 2020. And yet, as I wrote in Sea Change, that decline was probably responsible for the lion’s share of investment profits made over that period. How could it be overlooked?”
The guru went on to share how history is relevant to the argument, as well as the strategies that work best for the different market environments.
Marks concluded that the “overarching theme” of his thinking is that due largely to a “highly accommodative monetary policy, we went through unusually easy times in a number of important regards over a prolonged period, but that time is over.”
“There clearly isn’t much room for interest rate declines from today’s levels, and I don’t think short-term interest rates will be as low in the coming years as in the recent past,” he said. “For these and other reasons, I believe the years ahead won’t be as easy.”
Read Marks’ full memo here.
