By Bilal Hafeez 08-10-2019

Howard Marks on Mastering the Cycle (Brewin Dolphin Podcast, 28 mins listen)

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(You can listen to the podcast by clicking here)

Howard Marks, co-founder of Oaktree Capital Management, questions the recent longevity of the US Business Cycle. He thinks that the recent Fed rate cuts are a policy misdirection and believes that by extending the business cycle unnaturally the FED actually increases the risk of recession. For Marks, this unnatural extension could also increase the severity of the next recession. He even goes on to state that the mandate of the central bank should be limited to when the economy is either in hyperinflation or recession itself. The reason being that too much intervention within economy, in his view, increases the frequency of boom and bust behaviour.

Why does this matter? The Japanese and EU experience of a low-interest rate has taught us that aggressively slashing it does not have the intended effect on growth in real life as it seems to in theory. Marks may be right in pointing out that cutting interest rates as a pre-emptive step to prevent recession is just like borrowing growth from the future, which can make for a gloomy picture since it leaves less leeway in terms of policy tools.