This episode explores the history of interest rates and their profound impact on financial markets, inspired by Edward Chancellor's book, "The Price of Time." The discussion begins with Howard Marks reflecting on how Chancellor's previous work influenced his memo writing, particularly during the dot-com bubble. Against the backdrop of ultra-low interest rates in the mid-2010s, Chancellor explains how these rates led to high asset valuations, speculation, and the rise of "zombie companies," arguing that understanding interest is crucial for understanding this era. More significantly, the conversation highlights how low interest rates can distort economic coordination, leading to malinvestment and speculative manias, with examples ranging from historical railway bubbles to the modern internet boom and current AI excitement. As the discussion pivoted to central bank activism, both Marks and Chancellor express concerns about excessive intervention, advocating for a more restrained approach that considers broader economic factors beyond short-term inflation targets. The episode concludes with a reflection on the cyclical nature of financial history and the importance of understanding investor behavior, particularly in relation to credit cycles and speculative trends.
