Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 238

Howard Marks and his 'Latest Thinking'

Regular readers of Cuffelinks know we are fans of Howard Marks, Founder and Co-Chair of the $100 billion fund manager, Oaktree Capital. Financial markets are at a fascinating junction where most analysts expect favourable global growth, but a shadow is cast by massive government debts, rising interest rates and growing tensions between major countries (this week, The Economist identifies conflicts between the US, North Korea, China, the UK and Russia).

The latest Marks memo to his clients focusses on this contrast of market optimism versus fear.

The positives

Marks starts by clarifying he would never tell investors ‘it’s time’ to ‘get out’. The market rarely gives such clear signals. To counter the perception that he is overly cautious, he lists a number of positives, including:

  • The sustained US recovery from 2009 is now joined by other economies, delivering worldwide growth. There has been no boom and when a recession eventually occurs, there will probably not be a severe bust. The pro-business President Trump is encouraging capital spending, and tax cuts will help company profits.
  • US unemployment is down to 4.1%, the lowest in 60 years, which should gradually translate into wages growth and increasing consumer demand.
  • At the moment, inflation remains low and any rise in interest rates should be gradual and limited.
  • Overall, investors have not been behaving euphorically, reducing the catalysts for a downturn.

The negatives

He warns that this favourable macro environment comes with high prices for most asset classes, and the threat of rising inflation and interest rates and an uneasy quiet in markets:

  • Many valuation measures (such as Buffett’s ratio of market capitalisation to GDP, the VIX, bond yields, the Shiller cycle-adjusted P/E ratio) are at or close to all-time highs, which in the past have signalled a downturn.
  • Investors are taking risks to compensate for low returns, leaving prudent investors sidelined:
    “How healthy can it be when investors think an asset or market is rich but they’re holding anyway because they think it might go up some more? Fear of missing out (or “FOMO”) is one of the more powerful reasons for investor aggressiveness, and also one of the most dangerous.”
  • The easy money has been made, prospective returns are well below normal for almost every asset class and risky investor behaviour prevails. He argues for defensiveness rather than squeezing the last drop of return from the market.

Marks' summary of conditions

Marks does not try to satisfy the demand for a definitive position. Asset prices are worrisome but investor psychology is unpredictable. He will continue to invest on the basis of value relative to price, based on his mantra of “move forward but with caution”. His summary is:

“For me the key points regarding the general market outlook are as follows:

  • The absence of widespread euphoria certainly is an important flaw in any near-term bearish view.
  • Thus there’s no reason for confidence in the existence of a soon-to-burst bubble.
  • Investor psychology continues to grow more confident, however.
  • Asset prices are already unusually high.
  • Future events remain unpredictable, but today’s high prices mean the odds are against a significant long-term upward move from here.
  • No one can say what’s going to happen in the short term.”

And in response to the argument that a more aggressive stance would have produced higher returns, he says that could not have been justified by logical reasoning in the past. He muses:

“Is an incorrect decision one that didn’t work out well, or one that was wrong at the time it was made? I insist it’s the latter.”

We should all recognise this when we have remorse about missing out on a surging tech stock with little revenues, negative bond rates and Bitcoin going above $20,000.

 

Graham Hand is Managing Editor of Cuffelinks. The article is general information and does not consider the circumstances of any investor.

Howard Marks’s latest memo to his clients, which also discusses his reaction to the latest US tax cuts, is linked here: Latest Thinking.

CNBC Video: Billionaire investor Howard Marks: I wouldn't call this market euphoria

 

RELATED ARTICLES

Howard Marks: the investing game has changed

Howard Marks on uncertainty, forecasting and doubt

Howard Marks on 'Which way now?' - UPDATED

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 628

Australian investors have been pouring money into US stocks this year, just as they start to underperform the rest of the world. Is this a sign of things to come? This looks at 50 years of data to see what happens next.

  • 11 September 2025
Exchange traded products

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement

We need a better scheme to help superannuation victims

The Compensation Scheme of Last Resort fails families hit by First Guardian and Shield losses, as well as advisers who are being wrongly blamed for the saga. It’s time for a fair, faster, universal super levy solution.

Investment strategies

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Economy

How bread vs rice moulded history

Does a country's staple crop decide elements of its destiny? The second order effects of being a wheat or rice growing country could explain big differences in culture, societal norms and economic development.

Investment strategies

Small caps are catching fire - for good reason

Small caps just crashed the party like John McClane did in the movie, Die Hard - August delivered explosive gains. With valuations at historic lows, long-term investors could be set for a sequel worth watching.

Defensive growth for an age of deglobalisation, debt and disorder

Today’s new world order appears likely to lead to a lower return, higher risk investment environment. But this asset class looks especially well placed to survive, thrive, and deliver attractive returns to investors.

Economy

Will we choose a four-day working week?

The allure of a four-day week reflects a yearning for more balance in our lives. Yet the reliability of studies touting a lift in productivity is questionable and society may not be ready for such a shift anyway.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.