Tariffs have not only disrupted the economy and markets but also unsettled the hearts and minds of people worldwide.
“This is the biggest environmental shift I’ve seen in my career.” This judgment from Howard Marks, co-founder of Oaktree Capital, during an interview with Bloomberg on April 4, Eastern Time, reveals an era that is being profoundly reshaped.
From trade frictions to escalating tariffs, the global economic order is in a phase of being massively disrupted.
Marks bluntly stated: “We used to assume the future would resemble the past, but this time, no one knows what the rules will be six months from now.”
His core perspective isn’t about whether the market is cheap but rather that, in the current environment, “the predictability of the future is lower than at any time in the past.”
In this highly uncertain context, a drop in market prices doesn’t automatically translate to opportunity. He even cautioned that we are now in the most challenging stage of judgment—neither a time to be greedy nor fearful, but rather to acknowledge that “our confidence in our own predictions is lower than at any point in history.”
Even so, Marks still sees relative certainty in the credit markets. Compared to the volatile valuations of the stock market, the return paths of credit assets are more predictable.
He noted that, based on 47 years of experience in non-investment-grade credit, about 99% of issuers have honored their commitments. In a moment when macroeconomic variables are rife with uncertainty, assets backed by contracts and clear default costs may embody an investment logic of “staying calm amid the storm.”
Templeton’s adage of “buying at the point of maximum pessimism” might still hold true, but Marks’ reminder is this: we may not yet have reached that “maximum pessimism” moment.
What’s truly noteworthy is his stance: this isn’t a time for action but rather for observation, comparison, and calmly assessing whether risks align with prices.
Letting the bullets fly for a while might just be the rational approach right now.
This brings to mind Buffett quoting Rudyard Kipling’s poem If—, a favorite of Charlie Munger, in his 2017 shareholder letter. Buffett pointed out at the time, “When a major decline happens… that’s when you should pay attention to these lines.”
“If you can keep your head when all about you are losing theirs… If you can wait and not be tired by waiting… If you can think—and not make thoughts your aim… If you can trust yourself when all men doubt you… Yours is the Earth and everything that’s in it.”
Question 1: Just a month ago, you released a memo stating: “Overall, compared to stocks, the current credit market offers better investment opportunities. While credit spreads at this stage aren’t particularly enticing, they can deliver solid absolute returns with reasonable valuations.”
But this past month has seen massive market upheaval. The stock market has plummeted, and we’ve witnessed some of the harshest tariff measures in nearly a century. Have these changes shaken your judgment?
Howard Marks: From a yield perspective, my view still holds.
In fact, credit yields are now even higher than they were six weeks ago when I wrote that memo. For example, back then, high-yield bonds were yielding around 7.2%, and now they’re close to 8%.
This means bond prices have fallen, offering higher expected returns.
Of course, the stock market has also dropped significantly during this period—down about 15% to 17%, though I haven’t calculated it precisely since it’s changing every day.
The entire macroeconomic environment that stock prices depend on has been completely shaken, and many investors believe conditions have worsened, which is why prices have fallen.
The question is: Has the decline gone too far, is it just right, or is it still not enough?
No one can say for sure.
Question 2: The tariff measures announced this week might signal a “paradigm shift.” How would you measure a change of this magnitude?
Howard Marks: First of all, the word “measure” isn’t quite right because changes like this can’t be quantified or calculated.
The issue isn’t about how to “measure” it, but how you should think about these changes. In my career, this is the biggest environmental shift I’ve ever seen.
In the past, we talked about free trade and globalization, but now we’re entering an era of severe trade restrictions in every direction, with the U.S. moving toward isolationism.
I’ve always believed that the 80 years since World War II have been the most prosperous period in human economic history. One key reason for that is the growth of international trade.
It truly was a “rising tide that lifts all boats”—every boat was lifted by that tide, and trade was a huge part of it.
People should understand what trade means: every country has things it’s good at and things it’s not. The way to maximize global well-being is for each country to focus on what it does best and most cost-effectively, exporting those products to others while importing what other countries excel at producing.
That’s the essence of trade. The benefit is specialization: Italians make pasta, the Swiss make watches.
If trade stops and the Swiss have to make their own pasta while Italians have to build their own watches, the result is likely a lower quality of life for people in both countries. That’s the kind of situation we’re talking about.
Don’t underestimate the benefits globalization has brought!
In a memo I wrote ten years ago, I pointed out that over a certain 25-year period, the real price of durable goods in the U.S. (adjusted for inflation) dropped by about 40%.
That effectively curbed inflation back then, allowing Americans to buy more products at lower prices.
Without global trade, none of that would have happened.
The goal of tariffs is to encourage domestic production, but it’s hard to imagine that making most goods in the U.S. would be cheaper than importing them from overseas.
In other words, if we head back down the road of isolationism, prices will go up.
Question 3: Does this mean inflation will persist in the future? In other words, will the “disinflationary” trend driven by globalization reverse?
Howard Marks: Yes, it could indeed mean we’re entering an era of more persistent inflation because we’re cutting off the global supply chains that have helped keep prices down for decades.
All these shifts will have a major impact on prices, economic structures, corporate profits, and the investment environment.
Globalization brought financial benefits, one of which was suppressing inflation.
Think about it: if we hadn’t imported TVs and appliances from overseas during that 25-year period, what would inflation have looked like? The answer is, it would have been much higher.
Maybe not 2%, but possibly 3%, 4%, or even 5%.
Tariffs are essentially a cost increase, and someone has to pay for it. Most people think the consumer ends up footing the bill, though there are other possibilities—like importers, exporters, or even the exporting country’s government bearing the cost.
But no matter who pays, it’s an extra expense, and the revenue goes to the government.
So, does this really make society as a whole better off?
Question 4: In an environment with so many possibilities and an unclear future trajectory, how do you assess the risk and return of various asset classes? Especially now, when the credit market is offering yields of 7%, 8%, or even 9%, while stocks have delivered annualized returns exceeding 10% over the past few decades—but what about the future?
Howard Marks: Let me first address your statement that “stocks have had an annualized return of 10% in the past.”
Yes, over the past 100 years, the average annualized return for stocks has been about 10%, but that’s not when the price-to-earnings (PE) ratio was 19. Right now, the S&P 500’s PE is around 19.
The historical average PE is 16, so we can say: when the PE is 16, the annualized return is roughly 10%.
But if you look back at times when the PE was 19, investors’ annual returns were more likely between 1% and 6%, or 2% and 7%—certainly not 10%.
So, the price you pay matters a lot.
Currently, the S&P 500’s valuation is high compared to historical levels, so you shouldn’t expect it to deliver historical average returns going forward.
Question 5: And the reason you’re more optimistic about credit is that you believe the current yields are predictable and relatively certain, that concerns about default risk aren’t significant, and that the “total yield” on many bonds is quite attractive?
Howard Marks: Yes. “Credit” is the term used now, but it used to be called “fixed income,” and even earlier, people just said “bonds.”
In 1978, I moved from the equity department at Citibank to the bond department. Back then, no one talked about fixed income or credit investing—it was just bonds.
But whether it’s debt, fixed income, or credit investing, the essence is the same: what you see is what you get.
You can read the promised return right off the page. The only thing you need to worry about is whether it’ll be delivered—whether the issuer will default.
They promise you interest and to repay the principal at maturity. If they default, they could lose the whole company, so they have a strong incentive to honor their commitments.
I’ve been in the non-investment-grade credit space for 47 years, and our experience shows that about 99% of issuers have fulfilled their promises.
Question 6: Your career spans nearly five decades, and you’ve succeeded through many periods of market turmoil. Do you think this is a turbulent period worth “taking action” in?
Howard Marks: Yes, this is indeed a moment of “market dislocation.”
But everyone has to judge for themselves: Is the current drop in asset prices reasonable? Does it reflect the risks? Is it underestimating the future?
If prices have fallen too far, you should go all in; if they haven’t fallen enough, you should wait for a bigger correction.
However, this judgment can’t be reached through quantitative means.
Like I said earlier about the word “measure”—I pushed back on it a bit—because no analysis can tell you whether today’s asset prices reasonably reflect the future environment.
That’s always been the case: it’s always a guess, a judgment.
And so-called “great investors” are just those who judge better than others.
But today, it’s especially hard to judge because we have almost no clue about the future. Normally, we at least have some sense of the current trend, but now even the trend is unclear.
We usually assume the future will roughly resemble the past. We’re used to extrapolating from the past to predict the future, and most of the time, that works because the world doesn’t change that drastically.
But this time is different—the events of the past few days have completely upended the global economic order, and even the broader world order (including geopolitics and international relations). It’s like muddy water being violently stirred—murky, unclear, and impossible to judge for the moment.
Right now, no one knows what the future will look like.
I’d say this: if you told me right now that you know what the rules will be six months from now, I’d bet you’re wrong.
Because everything is in such dramatic flux, and once you admit the situation is unstable, you’re admitting you don’t know what the future holds.
Even if we knew what policies the U.S. would adopt in six months, we’d have no way of predicting how other countries would respond or what the consequences would be.
I’ve always been against making predictions. I don’t believe in macro forecasts—whether they’re mine or anyone else’s.
Today, we know less about the future than ever before.
People who like to live by predictions will say, “This will happen, so I’ll do this; that will happen, so I’ll do that.”
But what you really need are two things—not just the prediction itself, but also an estimate of how likely it is to be correct.
And at this moment, no matter what your prediction is, you have to admit: the odds of being right are lower than at any time in the past.
Because our ability to know the future is lower than ever before.
Question 7: So, in a moment like this, should we be “greedy” or “fearful”?
Howard Marks: You have to think of it this way—it’s like Bloomingdale’s suddenly holding a storewide sale. Over the past two days, the S&P 500 has dropped 8%, and over the past six weeks, it’s fallen even more.
This is essentially a market-wide discount sale. Logically, that should make people more willing to buy.
Of course, will prices keep falling? No one knows.
Are the current prices reasonable? No one knows.
But a lot of people see prices drop and run away from the market because they think, “Falling prices = higher risk.”
Sometimes, though, a drop just means things are cheaper.
Of course, you need to be forward-looking. As I’ve said repeatedly, you have to judge whether this “discount” is enough, whether it’s attractive.
At the very least, you should take a serious look.
And you can’t say, “I bought X at 100, and now it’s down to 90, so I’ve decided not to buy.” That doesn’t make any sense.
You have to reassess whether it’s worth buying now.
Question 8: Do you still think the U.S. is the best place to invest?
Howard Marks: I still think the U.S. might be the best place, but it’s not as “best” as it used to be.
Think about it—the reasons the U.S. was once the top investment destination boil down to a few key factors:
One is the foundation of the rule of law, but that advantage might be weakening now;
Another is the predictability of outcomes, and that’s not as solid today either;
And then there’s the fiscal situation.
Honestly, the biggest problem for the U.S. over the long term has been its fiscal deficits and debt.
We’ve been acting like someone with a “golden credit card” that has no limit and whose bill never comes due.
Imagine if you had a card like that. At first, you might buy a nice car, but soon you’d think, “Since the bill’s never coming, why not buy every car?”
That’s how our country spends, and it’s how Washington spends.
Now, with everything that’s happened in the past few days, is it possible that this “unlimited card swiping” situation could change?
Is it possible that at some point, a “credit limit” gets imposed? Or that one day, the bill actually arrives?
If the answer to either of those questions is “yes,” that’s a real risk.
If people stop liking the dollar or stop wanting to invest in the U.S.;
If we just end up angering a lot of people, making them think, “Okay, America’s credit might still be good, but I don’t want to hold its bonds anymore—look at how they’re treating us,”
Then the U.S.’s fiscal situation could get incredibly complicated.
