In his November 2025 Memo titled “Cockroaches in the Coal Mine,” Howard Marks once again examines how markets react to stress and how cycles of confidence and carelessness repeat. Quoting Jamie Dimon, he opens with a metaphor that captures investors’ current unease: “When you see one cockroach, there are probably more . . . everyone should be forewarned on this one.”
The failures of First Brands and Tricolor, both tied to private credit, became “precursors of problems ahead.” Marks notes that “the financial markets tend to obsess over a single topic at a given point in time,” and right now, that topic is “the recent string of episodes in sub-investment grade credit.”
He recalls how private credit was “anointed as a magic investment solution,” attracting “perhaps $2 trillion flowing into the sector.” Yet, as with all booms, “the arrival of new entrants and a great deal of incremental capital created more competition to lend and inevitably reduced some of the lenders’ advantages.”
For years, conditions were “mostly benign,” and, as he puts it, “the tide had never gone out on private credit.” Now that “two high-profile bankruptcies” have emerged, the cracks are beginning to show.
Still, Marks cautions against panic. “There are always defaults and not infrequently defalcations,” he writes. “It’s not an indictment of the whole private credit market. Rather, it’s just a reminder that the yield spreads people care about so much are there for a reason: because sub-investment grade debt entails credit risk.” Credit skills, he insists, “are always a necessity for debt investors . . . even if the need for those skills isn’t apparent in good times.”
The heart of the Memo revisits one of Marks’s enduring themes: “The Cycle in Attitudes Toward Risk.” He observes that “security prices fluctuate much more than do the intrinsic value and prospects of the underlying companies,” because of “the extreme volatility in the way people feel about risk.”
In good times, “risk is my friend,” while in bad times, “bearing risk is just a way to lose money.” This pendulum swings endlessly. “Good times lead to complacency, risk tolerance, and carelessness,” he writes, and “bad times expose the results of that carelessness.”
Marks draws on John Kenneth Galbraith’s idea of “the bezzle” — “the wealth financial fraudsters or embezzlers appear to have created, which lifts the spirits of the beneficiaries up until the time they’re found out.”
During booms, “the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly.” He warns that “it shouldn’t come as a surprise in the years ahead if the last sixteen years of largely uninterrupted economic growth, rising markets, and profitable risk taking are shown to have produced a bumper crop of frauds.”
In closing, Marks reminds readers that “defaults are a normal part of life in sub-investment grade investing,” and that “bullish conditions in good times usually lead to a lowering of lending standards.”
His takeaway is: “It’s absolutely essential to always balance the desire to put money to work with the need for prudence.”
You can read the entire memo here:
Howard Marks Memo – Cockroaches in the Coal Mine
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