Oaktree Capital's Marks Warns of Uncertainty from Tariffs, Compares to Brexit and 2008 Crisis

Howard Marks, a prominent investor and co-chairman of Oaktree Capital, has drawn parallels between the current tariff policies and the economic fallout from Brexit. He warns that the situation is entering a phase of "no one knows," echoing the uncertainty that followed the 2008 financial crisis and the COVID-19 pandemic.

Marks believes that the tariff policies implemented by the Trump administration will ultimately backfire, much like Brexit did for the UK. He points out that Brexit resulted in significant economic and political costs for the UK, including a decline in GDP, a drop in morale, and strained alliances. These outcomes were self-inflicted, and Marks suggests that the same could happen with the tariff policies.

Marks recalls the 2008 financial crisis, which began with the collapse of Lehman Brothers and the subsequent failures of other major financial institutions. The crisis was characterized by a series of interconnected factors, including deregulation, a housing bubble, irrational mortgage lending, the securitization of mortgages into complex financial instruments, high leverage, and interbank risk. The situation was so dire that it seemed the entire financial system was on the brink of collapse.

In response to the crisis, Marks wrote a memo titled "Nobody Knows," acknowledging the unprecedented uncertainty and the need for decisive action. He argued that while no one could predict the future, it was essential to assume that the market would eventually stabilize and to invest heavily in distressed debt at discounted prices. This approach, he believed, was the most logical course of action given the circumstances.

Marks' views on the current tariff policies are similarly cautious. He notes that the Trump administration's tariffs are aimed at achieving several goals, including boosting domestic manufacturing, encouraging exports, limiting imports, reducing the trade deficit, enhancing supply chain security, and countering unfair trade practices. However, he warns that the reality is much more complex and that the tariffs could have severe unintended consequences.

One of the most significant risks is the potential for retaliation from other countries, which could lead to a full-blown trade war. This, in turn, could result in higher prices, inflation, reduced consumer confidence, economic recession, and supply shortages. Marks also points out that the tariffs could lead to a shift in global economic power dynamics, with other countries potentially turning to China and Russia for support.

Marks emphasizes that the current situation is unprecedented and that there are no experts who can provide definitive answers. He argues that the only way to navigate this uncertainty is to make decisions based on the best available information and to be prepared to adapt as new information becomes available. He also warns against the temptation to do nothing, as inaction is itself a form of action with its own set of risks and consequences.

In conclusion, Marks believes that the tariff policies could have both positive and negative effects, but that the negative consequences are likely to be more immediate and severe. He urges investors and policymakers to approach the situation with caution and to be prepared for a range of possible outcomes. He also expresses his hope that the current situation will not lead to a prolonged period of economic uncertainty and that the global economy will eventually return to a state of stability and growth.