Howard Marks: Low Interest Rates and the Death of the Free Market

Ultra-low interest rates encourage bad investing habits, warns Howard Marks

In a recent memo, Howard Marks, founder of Oaktree Capital, cautioned against the negative consequences of ultra-low interest rates. Marks argued that, instead of being a tailwind for investors, these low rates incentivize bad investment behavior and discourage economic activity. He posited that the “natural” interest rate, which is determined by the supply and demand for money without the input of central banks, is the optimal rate for capital allocation. However, this natural rate has not been allowed to prevail in decades.