In one of his famous “memos” released on Jan. 9, renowned investor Howard Marks (Trades, Portfolio) revisited the topic of low interest rates after reading Edward Chancellor's “The Price of Time: The Real Story of Interest.”
The paper, titled “Easy Money,” began with Marks commenting on the state of the market during times of low rates, periods he characterizes as “easy times, fueled by easy money.”
While he has noted in the past “low rates alter investor behavior,” which can have serious consequences, Marks clarified the effects of low rates are “multifaceted and ubiquitous, yet frequently overlooked.”
The guru went on to list and explain some of these effects, including the fact low interest rates stimulate the economy, reduce perceived opportunity costs, lift asset prices and encourage risk taking that can lead to potentially unwise investments, among others.
He then provided an outlook for rates going forward and noted they are not that high currently.
Marks concluded, “Therefore, the investment environment in the coming years will feature higher interest rates than those we saw in 2009-21. Different strategies will outperform in the period ahead, and thus a different asset allocation is called for.”
Read Marks' full memo here.
