TOPIC • 6 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/
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.