TOPIC • 27 CLAIMS
Capital Flows
Where money is going, how fast, and what it does to standards when it arrives.
HOWARD MARKS/
The direct lending market grew from a niche into a scale that, by his account, could not have been filled by good borrowers alone.
- about $2 trillion of direct loans made over 15 years
- the entire private credit sector was about $150 billion 20 years ago
HOWARD MARKS/
Private equity returns have already lagged the public index over the recent period, undercutting the premium the asset class is sold on.
- MSCI: US private equity funds annualized 5.8% between 2022 and Q3 2025, versus 11.6% for the S&P 500
HOWARD MARKS/
He frames the economic transfer in terms of labor value migrating to compute.
- $150-250 billion in annual labor value migrating to AI compute, in software alone
HOWARD MARKS/
His concern is located in the financing of the buildout rather than in the equity multiples.
- roughly $5 trillion of data center buildout
- against about $350 billion held collectively by Microsoft, Alphabet, Amazon, Meta and Oracle
HOWARD MARKS/
He dates private credit to the post-crisis gap left by bank retrenchment, when the few lenders willing to put money out could demand both high rates and high safety, and argues that the new entrants and incremental capital that followed reduced those advantages — while the sector has still never been tested.
- the sector took root around 2011
- perhaps $2 trillion flowing into the sector in the subsequent years
HOWARD MARKS/
On portfolio construction he endorses the board’s appetite for leverage and illiquidity as reasonable for a well-funded plan, with the caveat that the lender can withdraw the leverage at exactly the wrong moment and that borrowing raises the bar for every low-returning asset held.
- a substantial majority comfortable using leverage at 15-20% of plan assets
- a slimmer majority backing 25% of the portfolio in illiquid assets
HOWARD MARKS/
What he chose to preserve from the run-up to 2008 is a sequence of standards warnings rather than a forecast: investors with too much money and too much eagerness bid the terms down, and the specific symptoms he named in mid-2007 were excessive leverage, untested securitization structures and too-easy access to capital.
THE BEST OF . . . →HOWARD MARKS/
He keeps the memo arguing that when vast sums arrive in an asset class, the fees available distort what managers are trying to do — alongside the position that no asset class is owed a return by birthright, since returns depend on mispricings existing and on the skill to find them.
THE BEST OF . . . →HOWARD MARKS/
Price controls bind one side only: a government can cap what landlords and insurers charge, but cannot make them supply.
MORE ON REPEALING THE LAWS OF ECONOMICS →HOWARD MARKS/
Perplexity, quoted and endorsed by Marks: California insurers barred from forward-looking models stopped writing new policies.
- Perplexity: rates required by law to be based on the previous 20 years of average losses
- Perplexity: State Farm announced non-renewals for over 70,000 policies statewide in 2024
- Perplexity: fewer than a quarter of affected properties were insured against fire
- a $5 million house with a 1% annual chance of burning carries a $50,000 expected payout
HOWARD MARKS/
A tariff is a tax, he says, and unless an exporter or importer absorbs it to hold market share, the end-consumer pays it.
- a $1.2 trillion US trade deficit in goods in 2024
- against a $290 billion positive balance in services
HOWARD MARKS/
Sheltered producers may raise prices and let quality slip, on his account, and exports may actually decline.
MORE ON REPEALING THE LAWS OF ECONOMICS →HOWARD MARKS/
Targeted tariffs he allows — security, iconic industries, unfair practices — unlike taxing all goods from all countries.
MORE ON REPEALING THE LAWS OF ECONOMICS →HOWARD MARKS/
Buyers judged US cars costlier but not correspondingly better, one main reason; the job losses he calls probably inevitable.
- roughly 7,500 cars imported in 1949, 0.03% of all cars sold in the US
- half the 16 million vehicles sold in 2024 were imports
- US auto workers’ medical benefits said in 2008 to amount to $1,900 per car
HOWARD MARKS/
The catch is second- and third-order effects: economies are made of people, so reactions are often significant and unpredictable.
NOBODY KNOWS (YET AGAIN) →HOWARD MARKS/
Tariffs are taxes on imports, and while the importer pays at the border, he says the cost is usually passed to the consumer.
- US consumer durable prices declined 40% in real terms between 1995 and 2020
- total inflation averaged only 1.8% per year over that period
HOWARD MARKS/
Reshoring meets capacity he doubts exists, factories that take years to permit and build, and probably too few skilled workers.
- the US went from importing 330 Volkswagens in 1950 to more than 400,000 in 2012
- a reported 1,000 US steel jobs saved by the 2018 tariffs against 75,000 lost in steel-using industries, which he says he cannot vouch for
HOWARD MARKS/
His larger worry is the golden credit card: a world investing less in the US and its Treasurys would change the fiscal arithmetic.
- fiscal deficits in each of the last 25 years and all but four of the last 45
- trillion-dollar-plus deficits in each of the last five years
- a $36 trillion national debt
HOWARD MARKS/
On private credit the tide has never gone out, he says, and the risk he names is manager behavior rather than something systemic.
GIMME CREDIT →HOWARD MARKS/
His recommendation is a partial step, not a switch: research it, set up a program, begin — better entry points may come again.
- prospective returns starting at roughly 7% on public credit and 10% on private credit
HOWARD MARKS/
Behavior can be encouraged or even compelled by law, he argues; outcomes, in general, cannot be mandated.
SHALL WE REPEAL THE LAWS OF ECONOMICS? →HOWARD MARKS/
Korea is his natural experiment: one people split in two, with a gap he thinks settles the argument about systems.
- GDP per person in purchasing power terms estimated at $2,000 in North Korea against $50,000 in the South, on data he calls scarce for the North
HOWARD MARKS/
Gouging is defined with subjective words — unfair, excessive, exorbitant — which leaves open who decides and by what standard.
- grocery prices up 26 percent since 2019
- supermarket margins of about 1% to 2% of sales, changed only a little in 2021-22
HOWARD MARKS/
Surge fares, concert tickets and a higher asking price on a house are the same act: markets clearing on supply and demand.
- Ford’s contract gave an 11% wage increase in the first year and 25% over 4.5 years, plus a $5,000 ratification bonus
HOWARD MARKS/
New York rent regulation is his longest case: rents held down, supply barely growing, some apartments worth more empty than let.
- rental apartment growth of only 0.3% a year between 2002 and 2017
- roughly 20,000 vacant rent stabilized apartments as of 2022
- a vacant-and-available rate of 1.4%, the lowest since 1968, against a healthy 5 to 8 percent
HOWARD MARKS/
He costs both sides’ proposals: down-payment help that would almost certainly lift home prices, and tax cuts nothing pays for.
- a million buyers at $25,000 each, or $25 billion in all
- Penn Wharton: $320 of 2026 tax relief for the average person in the bottom quintile against $47,220 for the top percentile
- $5.8 trillion added to the deficit over a decade, or $4.1 trillion allowing for trickle-down effects
HOWARD MARKS/
China is the objection he takes on directly: its growth rests heavily on a private sector the state learned to accommodate.
- GDP growth of nearly 9% a year for the last 45 years
- private firms at 60% of GDP, 70% of innovative capacity, 80% of urban employment and 90% of new jobs
Claims are restated; figures are the authors' own. Each links to the document it came from, which in turn links to the original in full.