On a new memo “Further Thoughts on Sea Change”, Howard Marks stated interest rate would not be much higher than now, but it’s not going back down to “ultra-low”.
If the declining and/or ultra-low interest rates of the easy-money period aren’t going to be the rule in the years ahead, numerous consequences seem probable:
- economic growth may be slower;
- profit margins may erode;
- default rates may head higher;
- asset appreciation may not be as reliable;
- the cost of borrowing won’t trend downward consistently (though interest rates raised to fight inflation likely will be permitted to recede somewhat once inflation eases);
- investor psychology may not be as uniformly positive; and
- businesses may not find it as easy to obtain financing.
He ended with
Unless there are serious holes in my logic, I believe significant reallocation of capital toward credit is warranted.