Howard Marks - The Mystery of Negative Rates

With negative rate bonds now 25-30% of all investment grade debt, worth over $17 trillion, Howard offers the different explanations he's heard for these rates. He also considers the industries that will be turned upside-down by negative rates - insurance and banking chief amongst them.

https://www.oaktreecapital.com/docs/default-source/memos/mysterious.pdf

Bottom-line:

In a world like the one described above, perhaps the most reliable solution lies in buying
things with durable cash flows. Bonds, loans, stocks, properties and companies with the
likelihood of producing steady (or hopefully growing) earnings or distributions that reflect a
substantial yield on cost all seem like reasonable responses in times of negative yields. In my
view, durability and dependability are highly desirable (rather than hail-Mary attempts at
a moonshot). They are the Oaktree way.
While all this might be self-evident, the challenge lies in accurately predicting the durability and
growth of cash flows and making sure the price you pay allows for a good return. In today’s market
environment, assets with predictability are often priced extraordinarily rich, and investors are
unusually willing to extrapolate growth far into the future. At the same time, with the economy and
markets operating under rules that are different from those of the past in many ways – some of which
are reflected above – accurate predictions are apt to prove harder to make than usual. These are
some of the reasons why, while simple in concept, investing is far from easy . . . especially
today.
October 17, 2019