Features

Howard Marks: don't rule out negative interest rates in the US

Current conditions in the US don't call for negative interest rates. But that doesn’t rule them out, says Howard Marks, founder of Oaktree Capital Management.

Howard Marks, chairman and co-founder of Oaktree Capital Group LLC © Brent Lewin/Bloomberg via Getty Images

"I don't think current conditions in the US call for negative interest rates. But that doesn't rule them out," warns distressed debt investor and author Howard Marks in his latest letter to investors. The US has better growth prospects and a stronger economy (for now) than areas of the world where negative rates (where savers are charged for investing in "safe assets" such as government bonds) have become prevalent (the eurozone and Japan).

Yet there's no guarantee that it won't happen in the US. For example, even if the Federal Reserve is reluctant to do so, it might have to cut interest rates in order to prevent the dollar from growing any stronger and so keep the cost of US exports from rising too much. Or perhaps the slowdown in manufacturing might give way to full-blown recession.

So what can investors do about negative interest rates? One option, he notes, citing an example in the Financial Times, is simply to rent out a big vault in which to stash your cash. It'll cost you, but not as much as keeping it in the bank will (at least in certain countries). The other option is to invest in riskier assets. Marks suggests "buying things with durable cash flows. Bonds, loans, stocks, properties and companies with the likelihood of producing steady (or hopefully growing) earnings or distributions that reflect a substantial yield on cost". This is simple in theory, but hard in practice, adds Marks, but look for "durability and dependability (rather than hail-Mary attempts at a moonshot)".

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Jonathan Ruffer: tech stocks have become “long-duration assets”
Tech stocks

Jonathan Ruffer: tech stocks have become “long-duration assets”

As with bonds, tech stocks are now held not because of that they are, but because of what investors fear if they don't hold them, says Jonathan Ruffer…
16 Oct 2020
What the race for the White House means for your money
US election

What the race for the White House means for your money

American voters are about to decide whether Donald Trump or Joe Biden will take the oath of office on 20 January. Matthew Partridge explains how vario…
15 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020
What would negative interest rates mean for your money?
UK Economy

What would negative interest rates mean for your money?

There has been much talk of the Bank of England introducing negative interest rates. John Stepek explains why they might do that, and what it would me…
15 Oct 2020