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

published 5 November 2019

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)".