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Topline
The idea that the Federal Reserve can continue to boost the U.S. economic recovery and stock market rally without interruption is “too good to be true,” especially amid “well-founded” fears about rising inflation, billionaire investor Howard Marks said in a new investor letter on Tuesday.
The famed investor discussed inflation and central bank policy in his latest note to investors.
Kyle Grillot/Bloomberg
Key Facts
The cofounder of Oaktree Capital Management says “it’s still Groundhog Day” for investors—with market conditions little changed from several months ago as stocks remain near record highs despite rising inflation worries.
The U.S. economic recovery that began in late 2020 “remains underway” and stocks have continued their meteoric rise since March 2020, but “there is still no consensus” on whether higher inflation will prove transitory or long-lasting, Marks said.
Worries about rising inflation are “well founded thus far,” though it also remains unclear whether the current surge is caused by the Federal Reserve’s monetary policy or ongoing supply chain and labor market bottlenecks.
While the central bank’s job has historically been to control inflation and oversee economic growth, the Fed has in recent years “taken on the additional task” of boosting markets higher by lowering interest rates and injecting massive amounts of liquidity into the economy, Marks described.
The billionaire investor was also critical of progressive Democrats who opposed the nomination of Jerome Powell for a second term as Fed chairman for his lack of action in addressing climate change.
“So now we have a Fed that’s supposed to control inflation, foster growth and employment, support markets and fight climate change—how many roles can one institution have and still maintain a coherent effort?” Marks asks.
Crucial Quote:
“For me, the expectation that the Fed can keep the economy and markets rising without interruption is too good to be true,” wrote Marks. “And I continue to believe the economy will perform best in the long run if it’s a free market economy, which does the best job of moving resources to their optimal use.”
Big Number:
$2.2 billion. That’s how much Marks, who cofounded Oaktree Capital Management in 1995, is worth today, according to Forbes’ estimates.
Tangent:
The billionaire investor also addressed recent comments on deflation from growth and innovation investor Cathie Wood, founder of $60 billion (assets) Ark Invest. Marks disputed her claims that technological gains would drive productivity gains and cause deflation in the economy. While technology will prove deflationary and contribute to a jump in GDP growth, that will also add to unemployment, Marks predicts. He concludes that the possibility of deflation “certainly seems unlikely to arise.”
What To Watch For:
“The Chinese economy will continue to grow faster than the rest of the world and may well become the largest economy,” Marks predicted. He observes that China has to navigate an “unusually large number of transitions” as it continues to modernize its economy, though he’s bullish on the country’s long-term growth prospects.