Marks asserts that AI's introduction makes the future profoundly less predictable, affecting everything from corporate business models to societal stability. This uncertainty challenges traditional investment forecasting, which relies on a stable set of assumptions about the future.
The conversation details the boom-bust cycle of private credit, from its attractive origins when capital was scarce to its current state where competition has eroded returns and safety. Marks notes that the yield spread between private and public credit has narrowed, suggesting the 'specialness' has gone and the asset class is now at equilibrium.
Marks emphasizes that long periods of good times, like the one since 2009, breed complacency, lax lending standards, and a fear of missing out (FOMO). He uses the adage "the worst of loans are made in the best of times" to warn that a downturn is necessary to reveal who has been taking on excessive risk.
While acknowledging AI's power as a data-processing tool that can outperform humans by operating without emotion, Marks believes it currently lacks crucial human capabilities for investing. He argues AI does not possess the intuition, judgment, or 'sense' to know when a market has become cheap enough to buy aggressively during a panic.
Keep pulling the thread on Howard Marks.