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

US inflation is rising – but it’s not enough to rattle markets yet
Inflation

US inflation is rising – but it’s not enough to rattle markets yet

The latest US inflation figures showed that consumer prices are rising more rapidly than expected. But markets shrugged. John Stepek asks why, and wha…
14 Apr 2021
Why all eyes will be on US inflation data this week
Inflation

Why all eyes will be on US inflation data this week

As the world comes out of lockdown and demand for goods and services rises, attention will shift to inflation and what it means for interest rates. Th…
12 Apr 2021
What will Joe Biden’s “build back better” plan mean for markets?
US Economy

What will Joe Biden’s “build back better” plan mean for markets?

Joe Biden recently proposed a $2trn “build back better” stimulus plan for America – on top of the $1.9trn he announced earlier this year. Saloni Sarda…
6 Apr 2021
What does Joe Biden’s $3trn infrastructure plan mean for your money?
US Economy

What does Joe Biden’s $3trn infrastructure plan mean for your money?

Joe Biden is set to announce a further $3trn of public stimulus in the US. Saloni Sardana looks at what’s on the table, and what effect it could have …
30 Mar 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Lab-grown meat: the new agricultural revolution
Soft commodities

Lab-grown meat: the new agricultural revolution

Vegan alternatives are taking off, but the future of food technology lies in lab-grown meat – cultivating steaks and burgers from animal cells, says A…
16 Apr 2021