During his recent interview with The Investor’s Podcast, Howard Marks explained why this decline in interest rates was the biggest single event in the last 45 years. Here’s an excerpt from the interview:
Marks: I believe there’s a couple things worth noting. Number one, I think that this decline in interest rates was the biggest single event of the last 45 years in the financial world.
Most people wouldn’t say that. Why? Because it was very gradual over a long period of time. Kind of like the frog in the pot of water. You know, if you put a frog in a pot of boiling water, he’ll jump right out. But if you put him in a cool water and you turn on the heat, he’ll just sit there while it gets hot and eventually he’ll succumb, because he doesn’t notice that it’s taking place so gradually.
And I think that’s what happened with rates, they change so gradually that people, I mean, if you sent out a questionnaire, what was the most important event of the last 45 years in the world of finance? I don’t think anybody would say… they would say derivatives, high yield bonds, private equity. Very few I think would say the decline in interest rates.
So a couple other things worth noting. Number one, that means that in order to have seen a more normal period, you had to be working in the seventies or maybe in the sixties. In the seventies, of course we had the battle against inflation, so that wasn’t a typical period. The sixties may have been something we would call normal, but that was obviously the sixties ended 53 years ago.
So not too many people who worked in the sixties are still working today, and I believe that the declining interest rates were responsible for the majority of all the money that’s been made in the last 45 years. So that’s pretty important. Those are my candidates for Sea changes, obviously, not just a normal cyclical up and down.
Not just an excess and a correction, but a replumbing of the whole environment.
You can watch the entire discussion here:
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