Howard Marks, cofundador de Oaktree Capital Management, has pointed out that the inflation in the US is excessive and that high rates are behind schedule for the current environment that the American economy is going through according to Erik Schatzker in Yahoo Finance.
“The fastest inflation in four decades has reached an ‘excessive’ level, in part due to the stimulative monetary policy used to counter the economic fallout from the pandemic,” Marks said.
“I am worried about inflation. Inflation is excessive,” Marks said in an interview with Bloomberg TV. “Higher inflation means higher interest rates, higher interest means lower asset prices.”
Now, as Marks argued he should have done months ago, the Federal Reserve is preparing to raise interest rates to contain prices. He said those higher borrowing costs will result in a slower recovery.
However, he added that doesn’t mean investors should dump their existing portfolios. Timing the market is difficult even for professionals, and credit investors shouldn’t do it because they’re getting a defined, contracted return at the end if they just hang on.
What could work?
“Most people invest too much, to their own detriment,” Marks said. “Investors worried about inflation can manage it with assets like floating-rate debt and property.”
Marks is known as the doyen of distressed debt investing, and Oaktree is one of the foremost specialists on troubled companies. The Los Angeles-based firm, which manages $158 billion in various types of alternative investments, has thrived in times of economic stress, when bonds from companies in danger of default fall at deep discounts.
But last year, Marks lamented that finding opportunities was almost impossible in the middle of the easy money environment which prevailed after the Federal Reserve flooded the economy with liquidity to soften the impact of the pandemic.
The move wiped out most of the outstanding distressed debt and bolstered companies that were in trouble even before the Covid-19 outbreak, depriving value-oriented investors like Oaktree of new targets.