TOPIC • 14 CLAIMS
Regime Change
Shifts large enough that strategies calibrated to the old environment stop working.
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 collection is organized around two claims about his own work: that a handful of principles have not changed in 35 years, and that the events worth chronicling across three decades were the dot-com bubble, the Global Financial Crisis and the 2022 shift in rate policy.
- 35 years of memos
- the first, The Route to Performance, dated October 12, 1990
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/
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/
He takes from Ferguson that every industrialized economy passed a manufacturing peak, so unfair trade probably was not the cause.
- manufacturing’s share of employment declined past roughly $40,000 of per capita GDP, essentially identically in every developed economy
- 8% of US non-farm jobs are in manufacturing today, down from about 30% in 1950
- about 400,000 unfilled job openings in US manufacturing
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/
Nobody is an expert here, since the modern era has produced no trade war on this scale against which to test the theories.
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 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 counts only three regime shifts worth the name across a 53-year career, which is what gives the term its weight: the case for buying high yield at all, the 40-year rate decline Volcker set off, and the reversal he was writing into.
SEA CHANGE →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 argues the prior decade’s benign default experience was an artifact of the rate regime, not a permanent feature of credit.
- high yield defaults averaged 3.6% from 1978 through 2009
- but an unusually low 2.1% from 2010-19
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.