- In a memo released Tuesday, billionaire investor Howard Marks warned investors to expect the “lowest prospective returns in history.”
- The Oaktree Capital Management co-founder said he’s been forecasting low returns for the last few years, but when the pandemic caused the Fed to move interest rates lower, expected returns lowered as well.
- Marks listed an array of reasons interest rates lowered returns, ranging from their stimulative effect to the reduction in the risk-free rate.
- “In my view, when uncertainty is high, asset prices should be low, creating high prospective returns that are compensatory,” Marks said. “But because the Fed has set rates so low, returns are just the opposite.”
Billionaire investor Howard Marks warned investors in his latest memo to expect the lowest returns in history, and said that the market is vulnerable to “negative surprises.”
“In my view, the low interest rates represent the dominant characteristic of the current financial environment, creating the dominant consideration for investors: the lowest prospective returns in history,” the co-founder and co-chairman of Oaktree Capital Management wrote.
In his memo titled “Coming Into Focus” released Tuesday, he said that for years he has been describing a vulnerable investment environment with the “lowest prospective returns ever,” pro-risk behavior from investors hunting for high returns, excessive asset prices, and an unusually high level of uncertainty.
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When the coronavirus pandemic prompted the Federal Reserve to lower interest rates, a policy move Marks viewed as necessary, expected returns lowered even more, he said. Marks listed an array of reasons interest rates lowered returns, ranging from their stimulative effect to the reduction in the risk-free rate.
“After a brief foray into bargain-land in March,