TOPIC • 12 CLAIMS
Interest Rates
The rate environment as the input that reprices every other asset.
HOWARD MARKS/
The four-decade tailwind that made leveraged strategies work has not merely stopped but reversed.
- a 40-year, 2,000-basis-point decline in rates from 1980 to 2020, 22¼% to 2¼%
- fed funds went from zero to 5¼-5½% starting in 2022
HOWARD MARKS/
The one macro call he singles out as possibly seminal is the rate regime: four decades of declining interest rates halted by the need to fight post-pandemic inflation, which he treats as the case where a strategy built for the old environment has to be reviewed from the ground up.
- 40 years of declining interest rates
HOWARD MARKS/
He walks through the year’s round trip to show the calculus moving the wrong way: the tariff shock repriced the fundamental outlook downward, the relief rally more than took it back, and so prices rose while the outlook did not.
- declines of up to 10% in the first quarter, with the Nasdaq Composite falling the most
- the tariff announcement took the S&P 500 to a level 15% below where it ended 2024
- the 10-year Treasury yield got as high as 4½%, up from just over 4% before the announcement
- from its April 8 low the index rose 29%, leaving it up 9% for the year to date and 14% above April 1
HOWARD MARKS/
He turns the same charge on Washington: chronic deficits, and a Social Security exhaustion date he says is not conjecture.
- fiscal deficits in 41 of the last 45 years, and trillion-dollar-plus deficits in all of the last five
- a roughly $1.8 trillion deficit in fiscal 2024, or 6.4% of GDP, in a time of prosperity
- the Trust Funds exhausted in 2035, with receipts then sufficient for only 79% of promised benefits
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/
In credit, default fear widened spreads while a flight to Treasurys cut their yields, raising available yields on net.
NOBODY KNOWS (YET AGAIN) →HOWARD MARKS/
What changed is the level, not the shapes: debt’s expected return was far below equities from 2009 to 2021 and is now closer.
RUMINATING ON ASSET ALLOCATION →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/
He calls the deficit an embarrassment, and says the Social Security fund goes insolvent by arithmetic unless something changes.
- the last surplus in 2000
- annual interest on the national debt exceeding the Defense Department budget for the first time
HOWARD MARKS/
He quantifies the tailwind that the prior four decades handed to anyone holding equities.
- S&P 500 rose from 102 in August 1982 to 4,796 at the start of 2022
- a compound annual return of 10.3%
HOWARD MARKS/
He uses a single borrower’s rate across his career to make the rate regime concrete rather than abstract.
- 22.25% in December 1980 falling to 2.25% fixed for 10 years — a 2,000-basis-point decline
HOWARD MARKS/
He isolates globalization as a disinflationary force that had begun to reverse.
- globalization reduced inflation by about 0.6% per year from 1995 to 2020
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.