The Marks Temperature

Think of this as a thermometer for greed. It doesn't predict what the market will do next. It tells you two things: how much you're being paid to take risk right now, and how eager everyone else is to take it.

When the needle is high, people are excited, assets are expensive, and you're being paid very little for the risk you're carrying. When it's low, everyone is frightened, prices are beaten down, and you're being paid a lot.

Most of the time the needle should sit in the middle, and the honest answer is nothing to see here. That's deliberate. Howard Marks ran one of the world's biggest credit funds for decades and made only five big market calls in fifty years. A gauge that screamed every month would be lying to you.

The five bars underneath show which part of the picture is driving the number. Each one is scored 0–100 and they're blended by the weights shown.

What the colours mean. Red is stretched, amber is warm, plain white is unremarkable. Nothing here is a buy or sell signal — they're conditions, not instructions.

HY OAS · 272 bps. The extra interest a risky company has to pay to borrow, compared with the US government. "Basis points" just means hundredths of a percent, so 272 = 2.72% extra. It's the danger money lenders demand. Marks reckons 400–600 is normal, so lenders are currently charging unusually little for taking a real risk. The lowest it has ever been was 241 — in June 2007, weeks before the financial crisis.

Adequacy · 1.17×. Whether that danger money actually covers the damage. Some borrowers go bust each year; historically the cost works out at roughly 233 basis points a year on average. You're being paid 272. Divide one by the other and you get 1.17 — you're earning about 17% more than the losses should cost you. That's a thin cushion. Below 1.0 and you'd be taking the risk for nothing.

CCC OAS · 1023 bps. The same danger money, but only for the weakest borrowers. Above 1,000 is what Marks calls a "distress candidate" — the market is openly doubting it gets repaid. So while the overall market looks calm at 272, the bottom of it is already in trouble. That contradiction is the most interesting thing on this page.

Shiller CAPE · 42.3. How expensive shares are. It's the price divided by average profits over the past ten years — the ten-year average stops one freak year distorting things. The long-run typical reading is about 16. At 42.3, shares cost roughly two and a half times their historical norm. It has only ever been higher once: 44.2, in December 1999.

Forward P/E · 20.0. The same idea using next year's expected profits instead of the past decade's. You're paying $20 for every $1 of annual earnings. That matters because, historically, what you pay at the start has determined most of what you earn over the following ten years — and 20× has tended to produce around 3% a year.

Margin debt · $1.50 trillion. How much investors have borrowed against shares they already own in order to buy more shares. It's a good read on confidence — people only borrow to invest when they feel sure. The catch is that borrowed money works both ways: it magnifies gains going up, and it forces people to sell at the worst possible moment going down.

When a risky company borrows money, it has to pay a higher interest rate than the US government does. That extra bit is the "spread." It's the danger money lenders demand for the possibility of not being paid back.

When lenders feel relaxed, they accept a small spread. When they're frightened, they demand a big one. So the spread is a fear gauge — and it belongs to the people with the most at stake, the ones handing over the actual cash.

The numbers are in "basis points." 100 basis points = 1% of extra interest. Marks says a normal spread is 400 to 600 — that's 4% to 6% above government rates.

Right now it's 272. The lowest it has ever been was 241, in June 2007 — a few weeks before the financial crisis started. In plain terms: lenders are currently charging close to the least danger money they have ever charged.

This is the question almost everyone skips. People argue endlessly about whether the spread is "low." Marks says that's the wrong question. The right one is: does it cover the losses that are actually coming?

Think of it like insurance. Some borrowers go bust — historically about 2.7 out of every 100 each year. When one does, lenders typically recover only about a third of their money, losing the other two thirds. Multiply those together and you get the rough annual cost of things going wrong: about 180 basis points.

Now compare that to the 272 you're being paid. The ratio is about 1.5× — you're getting one and a half times what the damage should cost you.

Above 2× you're being paid well. Around 1.5× is fair. Below 1× you are effectively lending money for free and taking the risk as a hobby.

Drag the slider to see what happens if bankruptcies come in worse than a calm year. In a recession they can hit 8–10%, and the ratio collapses well below 1× — which is the whole reason thin spreads are dangerous rather than merely unexciting.

Imagine a school where the average grade looks perfectly healthy — but only because the top students got brilliant marks while a chunk of the class is quietly failing. The average hides the problem.

That's what's happening here. The headline number (272) looks calm. But split the borrowers into tiers and the picture changes completely: the safest ones pay almost nothing extra (160), while the weakest pay a fortune (1,023). Anything above 1,000 is what Marks calls a "distress candidate" — the market is openly doubting it gets paid back.

There's a second trick, and it's the one nobody adjusts for. The make-up of the class has changed. In 1999 only a third of these borrowers sat in the top tier. Today more than half do. So the average looks better largely because the group got safer on paper — not because lenders are demanding more danger money.

Rewind the mix back to its 1999 shape and the "true" comparable number is about 464 — right inside Marks's normal range. The calm you see in the headline is partly an accounting illusion.

The price you pay decides most of what you'll earn. Buy a flat at a silly price and your rental yield will be poor no matter how nice the flat is. Shares work the same way.

Each blue dot is one month between 1988 and 2014. Left-to-right shows how expensive shares were that month — measured as the price divided by a year's profits, so "20×" means you paid twenty pounds for every pound of annual earnings. Up-and-down shows what you actually earned per year over the following ten years if you'd bought then.

The pattern is hard to miss. The more you paid, the less you made. Not occasionally — almost every single time.

The red dot is today. At 20× earnings, this relationship points to roughly 3% a year for the next decade.

One honest warning, which Marks doesn't give and you should. The dots have to stop in 2014, because you need ten full years to know how an investment turned out. And that whole stretch had interest rates falling, which flattered returns. Treat this as a strong hint, not a prophecy.

When shares are expensive, you are paying for a company to stay on top for decades. So it's only fair to ask how often that actually happens.

Take the twenty biggest companies in America in the year 2000. Twenty-four years later, only six were still in the top twenty. General Electric, Cisco, Intel, Citigroup, IBM, AT&T — untouchable giants at the time, all gone from the list.

And of today's "Magnificent Seven" — the handful of tech names driving the whole market — only Microsoft was even in that 2000 list.

So being the biggest company today tells you surprisingly little about being the biggest in twenty years' time. Roughly a 30% survival rate. Yet today's prices quietly assume near-certain survival. That gap between what's priced in and what history delivers is the entire argument.

Marks published this as a bit of a joke and it turned out to be one of his most useful tools. It's just a list of opposites. For each row, pick whichever side sounds more like the world today.

There's no maths involved, and that's the point. Some of the most reliable warning signs can't be measured, only noticed — are people excited? Are silly deals getting done? Is everyone at the dinner party suddenly an investor?

If most of your ticks land on the left, the market is running hot and, in Marks's words, you should "hold on to your wallet." If most land on the right, everyone is miserable and prices are depressed — which, historically, is exactly when the best bargains have been available.

Rows marked ⚡ auto fill themselves in from live data. The rest are your own judgement, and that's not a weakness — Marks says plainly that he can't quantify these, he just listens for them.

In late 2022 Marks argued the investing world had fundamentally changed — that the era of nearly-free money was over and wouldn't come back. He called it a sea change, and said it was the only prediction of that kind he'd made in his entire career.

He laid it out as a simple before-and-after list: how things looked during the easy-money years (2009–2021), versus how they looked once rates rose.

The third column is where things stand today. Read down it and you'll notice something uncomfortable. Mood: optimistic. Buyers: eager. Credit window: wide open. Spreads: near record tight. On most rows we have drifted back to the left-hand column.

The sea change he described appears, at least in part, to have reversed.