The new Howard Marks memo is about negative rates and deflation…
both of which mysterious…
… and full of peril.
Though there is one consideration, perhaps implied in the analysis, that opens up the possibility for a less troubled view…
The consequence of tech proliferation.
- Tech enabled offerings have been deflationary in nature, and are becoming dominant worldwide.
- Consumers and businesses both benefit from low and declining costs (often free) in the environment that is forming.
- Businesses however are increasingly confined to competitive power law patterns, where a few take the most of economic pools and the shrinking remainder gets shared among the long-tail multitudes.
- As a result, a concentrated group of businesses have seen their cash troves surge, which excess liquidity needs to be invested, reinvested, distributed, or deposited somewhere.
- The internal reinvestment opportunity is of (proportionately) narrow magnitude in the low-cost tech environment described, while externally directed funding is similarly limited for the growing cash piles at the top.
- Deposits, thus, including government debt purchases, could by elimination be more than typically desired, circularly contributing to the low-rate deflationary spiral…
- … and shareholder distributions more than typically triggered, extending similar cash choices and considerations to recipients (disproportionately institutional and increasingly also concentrated in power law formations).
And there is broad-based benefit to all of this…
- The consumer gains in purchase power and diminished costs of living.
- Governments, businesses and institutions fund economic deficits at nothing rates to plug the holes that happen.
… until something causes the trend to reverse, most likely at some point of excess, which is not unheard of.
Like many things nowadays, this is a theory, and probably not mine alone. Subscribe at your own peril.