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In the new interest rate environment that is expected to stay high, different strategies and asset allocation calls will outperform, said Howard Marks, co-founder and co-chairman of Oaktree Capital Management, in a memo called “Easy Money.”
Marks noted that declining
and ultra-low interest rates had a huge but underrated influence on the market in the past and listed 10 ways it alters investor behavior.
- “Easy money” stimulates the economy, but temporarily. After the economy grows too fast, rates will have to be raised, which will in turn discourage economic activity.
- Low interest rates reduce perceived opportunity costs, making borrowing easier and more frequent.
- Low interest rates raise asset prices because the lower the rate at which future cash flows are discounted, the higher the present value, Marks wrote.
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