Evan Simonoff

Americans lulled into complacency by low interest rates are now confronting the sharp reversal .

HAT WAS THE MOST SIGNIFICANT FINANcial event of the last 40 years — the 1987 stock market crash , the 1989 S & L crisis , the collapse of Long-Term Capital Management in 1998 , the Enron accounting scandal , the Great Financial Crisis of 2008 or the pandemic ? According to Howard Marks , the world ’ s largest distressed debt investor , who posed the question at John Mauldin ’ s Strategic Investment Conference on May 1 , it was none of the above .

Marks , the co-chairman of $ 164 billion Oaktree Capital Management , identified the persistent decline in interest rates starting in 1981 — when the fed funds rate went from 20 % to 0 %— as the overriding driver of markets for four decades . This inexorable , multi-decade movement , in his view , was similar to being on a walkway in an airport where “ everyone else is on the same moving walkway , so you don ’ t notice it .”

Marks told Mauldin he expects current interest costs “ to remain roughly where they are ,” but even that “ changes everything in the investment world .” If the fed funds rate stays in the 2 % to 4 % band instead of the 0 % to 2 % range of the last decade , things will change more dramatically than we expect , he said .

That ’ s a dynamic that financial institutions are wrestling with this year . Following the aftermath of the financial crisis , near-zero interest rates had made it difficult for businesses to default or go bankrupt . Even marginal companies managed to survive .

Marks explained that between 2010

20 | FINANCIAL ADVISOR MAGAZINE | JUNE 2023 WWW . FA-MAG . COM