Howard Marks, Oaktree Capital — 2025-04-09
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Memos from Howard Marks 2025-04-09T07:00:00.0000000Z" pubdate title="Time posted: >4/9/2025 7:00:00 AM (UTC)">Apr 9, 2025
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On Monday, September 15, 2008, shortly after the close of the New York Stock Exchange, Lehman Brothers surprised the world by filing for bankruptcy. This came on the heels of rescues/bankruptcies of Bear Stearns and Merrill Lynch and was followed quite soon by more of the same at Wachovia, Washington Mutual, and AIG. Market participants quickly concluded that the U.S. financial sector was on the verge of melting down. It had become patently obvious (unlike a few days earlier) that financial institutions might fall like dominoes due to the combination of (a) financial deregulation, (b) a manic housing boom, (c) unwise mortgage lending, (d) the structuring of mortgages into thousands of tranched securities that were rated too high, (e) investment in these securities on the part of highly levered banks, and (f) "counterparty risk" resulting from the banks' interconnectedness. Reflecting this fear, the markets embarked on what felt like a downward spiral without end.
I thought I should comment on these developments and the outlook, and the result was a memo called Nobody Knows , published four days later. I affirmed my ignorance of the future as usual, but to an even greater degree given that all prior expectations had been upended. Nobody knew – especially me – whether the spiral could be arrested. Nevertheless, I concluded that we had to assume it would, and thus that we should plow money into financial assets at their highly discounted prices.
There was nothing anyone could say they "knew," and that included me. I was limited to gaming out my conclusions, which were as follows:
we can't confidently predict the end of the world,
we'd have no idea what to do if we knew the world would end,
the things we'd do to gird for the end of the world would be disastrous if it didn't end, and
most of the time the world doesn't end.
Clearly, I didn't base these conclusions on knowledge of the future. But I saw no logical choice other than to start putting money to work, including the $10 billion that was sitting uninvested in Opportunities Fund VIIb. We had formed that fund to prepare for an elevated opportunity in distressed debt. How could we not follow through when one arrived, especially given the bargains — and the extraordinary yields — available on some of the highest quality debt we'd ever been able to buy in distress? And yet, we admittedly had no idea what the future would bring.
I can't claim to have analyzed the future. In fact, I consider the phrase "analyze the future" one of the great oxymorons. The future has not yet been created, and it's subject to millions of complex, unquantifiable, and unknowable factors that will always be in flux. You can ponder the future and speculate about it, but there's nothing to "analyze" and certainly there wasn't in the early days of the Global Financial Crisis.
In March 2020, I reused the title of the 2008 memo for Nobody Knows II , my first memo during the Covid-19 pandemic. In it, I cited Harvard epidemiologist Marc Lipsitch, who said we usually make decisions on the basis of (a) facts, (b) informed extrapolations from analogous experiences, and (c) opinion or speculation. But since there were no applicable facts regarding a Covid pandemic and no analogous experiences, we were left with only speculation.
I want to say right here about 2008 and the other crises I've invested through – as well as today – that I don't reach my conclusions with confidence or act without trepidation. There's absolutely no place for certainty in the world of investing, and that's particularly true at turning points and during upheavals. I'm never sure my answers are right, but if I can reason out what's most logical, I feel I have to move in that direction.
The Uncertain Outlook
In my February memo 2024 in Review , which went only to clients, I said the word to describe the Trump administration was "uncertainty." President Trump's thinking seems less predictable than that of most presidents, largely because it doesn't necessarily hew to a consistent ideology, and it's very much subject to being applied and revised tactically. It should be noted, however, that Trump has complained about how the U.S. is treated in world trade and argued in support of tariffs since at least 1987. Having said that, and even though we knew he was going to hike tariffs, no one anticipated the magnitude of the increases. Clearly the markets hadn't.
Last week's events remind us of the events of 2008 and the Global Financial Crisis they produced. All norms have been overthrown. The way world trade has operated for the last 80 years may be of little relevance to the future. The impact on economies and the world at large is entirely unpredictable. We're faced with large-scale decisions, yet again there are no facts or prior experiences on which to base those decisions. Truly nobody knows, and a lot of this memo will be about things we can't know for sure. But I hope it'll help you organize and evaluate the issues.
I want to point out that there are no experts on the subject at hand. Economists have analytical tools and theories to apply, but no economist and no tool will produce a conclusion in this instance that we can follow with confidence. There have been no large-scale trade wars in the modern era; thus, the theories are untested. Investors, businesspeople, academics, and government leaders will all give advice, but none of them is much more likely to be right than the average intelligent observer. The things on which everyone will agree are obvious, such as the likelihood of higher prices. The less obvious truths will be harder to discern.
One of the things I insist on is that even for someone who deals with the future via forecasts, a forecast isn't enough. In addition to a forecast, you also need a good sense for the probability your forecast is correct, since not all forecasts are created equal. In this case, under these circumstances, it must be accepted that forecasts are even less likely to prove correct than usual.
Why? Primarily because of the vast number of unprecedented unknowns involved in the current matter, which has the potential to turn into the biggest economic development in our lifetimes. There's no such thing as foreknowledge here, just complexity and uncertainty, and we must accept that as true. This means that if we insist on achieving certainty or even confidence as a precondition for action, we'll be frozen into inaction. Or, I dare say, if we conclude we've reached decisions with certainty or confidence, we'll probably be mistaken. We must make our decisions in the absence of those things.
But we also have to bear in mind that deciding not to act isn't the opposite of acting; it's an act in itself. The decision to not act – to leave a portfolio unchanged – should be scrutinized as critically as a decision to make changes. The old saws that are the refuge of terrified investors – "we're not going to try to catch a falling knife" and "we should wait for the dust to settle and the uncertainty to be resolved" – cannot in themselves be allowed to determine our behavior. I love the title of a book by a market analyst named Walter Deemer: "When the Time Comes to Buy, You Won't Want To." The negative developments that make for the greatest price declines are terrifying, and they discourage buying. But, when unfavorable