Legendary investor warns: A wave of catastrophic defaults is coming! The Fed may cut interest rates sooner

Oaktree Capital Management founder Howard Marks warned in an interview that the world's top companies will face a wave of potentially damaging debt maturities in 2025.

The billionaire investment manager explained that while the economy is "doing very well right now," investors may soon find out "who's swimming naked" as the huge debt piled up by businesses in 2021 and 2022 will be felt next year. Begins to expire.

Marks said a weakening economy combined with a surge in debt maturities could lead to massive defaults, forcing companies that accumulated large amounts of debt when interest rates were near zero to face reality.

Marks said, "Buffett is right when he says that when the tide goes out, we will know who is swimming naked. But the tide has not gone out yet. If there is a surge in loan maturities during a period of economic weakness or economic weakness for certain groups, that will That's when defaults are imminent. We're actually talking about loans being deferred until next year."

The legendary investor added, "The question is which companies and industries perform well when things get tougher." He believes the key now is to figure out whether prices reflect reality or are overvalued or undervalued. .

"I make a living buying things that other people think are bad, but if you buy them cheap enough, they turn into a good thing," Marks said.

Marks also said he believes that if the U.S. economy's inflation rate begins to fall back toward the 2% target, Federal Reserve Chairman Jerome Powell may begin cutting interest rates sooner than previously stated.

He said, "Powell said he won't cut interest rates until he sees that inflation is heading towards 2%, and I think the word 'heading' is very important. He didn't say necessarily until inflation reaches 2%, if inflation starts to reach 3% , 2.75%, 2.5%, maybe he will start cutting rates.”

However, Marks noted that current rates are benefiting companies that invest in credit instruments, including Oaktree Capital Management, because they offer higher yields.