- Howard Marks plans to profit from less liquidity, higher interest rates, and more fear in markets.
- Oaktree's billionaire cofounder touted a raft of bargains in bond and credit markets.
- Marks expects a rise in corporate bankruptcies as higher borrowing costs take their toll.
Companies are reeling and money managers are taking cover in the face of historic inflation, surging interest rates, and a looming recession. The growing fear and shrinking liquidity are throwing up bargains for bold investors, Howard Marks has said.
"Risk aversion has replaced FOMO," Marks told the Financial Times in a recent interview, using the acronym for "fear of missing out."
The Federal Reserve, in response to inflation hitting a 40-year high this year, has hiked interest rates from virtually zero in March to about 4% today in an effort to cool upward pressure on prices. Higher rates encourage saving over spending and make borrowing more expensive, which dries up liquidity in the economy and heaps pressure on businesses.
"Capital is harder to come by," Marks said. "Debt is available at very attractive returns ... which are likely to go higher."
The billionaire investor and cofounder of Oaktree Capital Management struggled to find good deals when money flowed freely and speculation reined during the pandemic. Now he's spotting bargains in junk bonds, leveraged loans, distressed debt, mortgage-backed securities, and collateralized loan obligations (CLOs), he said.
He also expects corporate bankruptcies to tick upward as tighter financial conditions squeeze companies, creating further chances to profit.
"It's been a tough last decade-plus for bargain hunting, but I feel we're holding more cards now," Marks said. "The easy days are over for now. It's no longer an asset owner's paradise, a seller's market and a borrower's market."
The investor, who called the dot-com bubble and made a fortune buying distressed debt during the financial crisis, is one of several investors who see a bright side to the dark economic outlook.
For example, Third Point's Dan Loeb revealed he's been scooping up discounted assets, and sees the most exciting opportunities in the structured-credit market since the height of the pandemic in 2020.