“I don’t think the stockmarket is delirious,” distressed debt investor and author Howard Marks tells Dan Weil of The Wall Street Journal. “Valuations aren’t terribly high.” And even though the US is now well into its “longest recovery on record”, it’s also been “the slowest since World War II. That suggests not so many excesses have built up”.
But when it comes to debt, and government spending in particular, Marks is less sanguine. “It’s worrisome that the government is applying stimulus in the 11th year of economic recovery, running a massive deficit and adding so much to the national debt, yet no one seems to be worried.” That’s not to say that something bad will definitely happen, but overspending can have consequences, notes Marks.
Running a budget deficit in order “to build a port or bridge” with a high “internal rate of return” seems logical. But that’s not where government spending tends to go. “If you look at societies running hyperinflation, you don’t want to live in them. Large budget deficits can lead to that… I’ve always been told that you can’t print an infinite amount of money without something going wrong.”
That said, for all the low interest rates and quantitative easing we’ve experienced so far, inflation has yet to jump. This, notes Marks, is “very mysterious… it makes me wonder whether the orthodoxy is wrong. As the saying goes, ‘It isn’t what you don’t know that gets you into trouble. It’s what you know for sure that just isn’t so’.”