(Bloomberg) — The fastest inflation in four decades has reached an “excessive” level, in part because of stimulative monetary policy used to counter the economic consequences of the pandemic, said Howard Marks, co-founder of Oaktree Capital Management.

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“I am worried about inflation. Inflation is excessive,” Marks said in a Bloomberg TV interview. “Higher inflation means higher interest rates, higher interest means lower asset prices.”

Now, as Marks argued it should have done months ago, the Federal Reserve is preparing to raise interest rates to contain prices. He said those higher borrowing costs will result in a slower recovery.

However, Marks added that doesn’t mean investors should dump their existing portfolios. Timing the market is difficult even for professionals, and credit investors shouldn’t do it because they’re getting a defined, contracted return at the end if they just hold on, he said.

What Works

Most people trade too much, “to their own detriment,” Marks said. Investors worried about inflation can ride it with assets such as floating-rate debt and property, he said.

Marks is known as the dean of distressed-debt investing, and Oaktree is one of the largest specialists in troubled companies. The Los Angeles-based firm, which manages $158 billion in various types of alternative investments, has thrived in times of economic stress, when bonds of companies in danger of defaulting fall to deep discounts.

But last year, Marks lamented that finding opportunities was nearly impossible amid the easy-money environment that prevailed after the Federal Reserve flooded the economy with liquidity to soften the impact of the pandemic.

Story continues

The move erased most of the distressed debt outstanding and propped up companies that were ailing even before the Covid-19 outbreak, depriving value-oriented investors like Oaktree of new targets.

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