Billionaire Howard Marks says he’s worried about excessive inflation


Legendary investor Howard Marks has joined a list of top business leaders sounding the inflation alarm.

“I’m worried about inflation,” he told Bloomberg in an interview published Tuesday. “Inflation is excessive.”

The consumer price index – a popular measure of inflation in the United States – gained 7% year-on-year in December, marking the highest inflation since 1982. It is a slight recovery from November’s 6.8% gain.

“A little inflation is good and keeps everything moving. But excessive inflation, defined as well above 2%, is undesirable,” Marks added. “Higher inflation means higher interest rates, higher interest means lower asset prices. And that’s what’s happening right now.”

The billionaire co-founder and co-chairman of Oaktree Capital Management said the Federal Reserve’s decision to cut interest rates during the pandemic, to encourage borrowers to consume and invest more quickly, had served its purpose.

“The economy has gotten very strong, has been very strong, and the demand associated with that strength is contributing to inflation to some degree,” he said. “I think interest rates need to go up. The economy needs to be less stimulated.”

The Fed signaled it would raise interest rates, which influence borrowing costs from mortgage rates to auto loans, at least three times in 2022. He said these higher borrowing costs will drive a recovery slower.

Marks, one of the most well-known specialists in distressed debt, shared two methods on how investors should position themselves in an inflationary environment.

He said investors might want to hold more floating rate debt or variable interest rate instruments and lease property at rates that can be increased over time.

At the same time, he said investors should not empty or reverse their existing portfolios. “I wouldn’t throw away everything I own to buy a bunch of what I just described. That’s going too far,” he said. “Just make small changes at the margin, in my opinion.”

He also warned that market timing doesn’t always end well for investors, most of whom trade “to their own detriment”.

“Being long-lasting is what makes people successful as investors,” he said, adding that only a few professionals can successfully seize or exit good opportunities at the right time.

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