For more than thirty years, Howard Marks has sent the clients of Oaktree Capital a series of memos on markets — letters so widely read that Warren Buffett has said he opens them first. Marks built his career in distressed debt, the corner of investing where being wrong is expensive and being early can feel the same as being wrong. So it's worth asking, as a thought experiment built on his public writing: how might Marks look at a day like today? And — because his central metaphor turns out to be surprisingly measurable — what do 55 years of real data say about it?
He wouldn't try to predict it. Marks's most quoted line is four words: "You can't predict. You can prepare." He has spent decades arguing that forecasting the market's next move is a fool's errand — not because forecasters aren't smart, but because the future genuinely isn't knowable. What you can do, he says, is understand where you are and position accordingly. On a day like this, he wouldn't be asking "what happens tomorrow?" He'd be asking "where does today sit?"
He'd locate the pendulum. The central image in Marks's work is a pendulum swinging between greed and fear, between risk tolerance and risk aversion. It rarely rests at the sensible middle; it spends most of its time traveling from one extreme toward the other. The investor's job, he argues, is not to time the swing but simply to know where the pendulum is right now — are people euphoric and paying up for risk, or frightened and giving it away? That single read shapes how much risk is worth taking today, before any question of what to buy.
The pendulum, measured — 55 years of it
Here is the part most retellings of Marks skip: the pendulum is not just a metaphor. You can put a number on it. The Chicago Fed's National Financial Conditions Index (NFCI), published weekly since 1971, compresses roughly a hundred measures of credit, risk appetite, and leverage into a single reading. Zero means conditions are at their long-run average — the "sensible middle." Positive means tighter, more fearful; negative means looser, easier, greedier. Plot it, and you are looking at five and a half decades of Marks's pendulum:
Two things jump out. First, Marks is empirically right that the pendulum almost never rests in the middle: since 1971, the index has sat within ±0.10 of its midpoint in only about 6.5% of all weeks. The other 93.5% of the time it was somewhere on its way between ease and fear. Second, the swings are wildly asymmetric — fear is violent and brief, while ease is quiet and long. The index has spent roughly 70% of all weeks below zero, punctuated by spikes like 1974, 1980, and 2008.
| When | NFCI | What was happening | Pendulum position | What came next |
|---|---|---|---|---|
| Jul 1974 | +5.21 | Oil shock, inflation, a −48% two-year bear market | Extreme fear — the record | The S&P 500 bottomed in Oct 1974; a decade-defining low |
| Apr 1980 | +4.01 | Volcker squeezes inflation with ~20% rates | Deep fear | Double-dip recessions, then the great 1982 bottom |
| Nov 1987 | +1.15 | Black Monday aftermath | Fear — but contained | No recession; the market recovered within two years |
| Feb 2007 | -0.68 | Peak pre-crisis calm: credit flowing, spreads tight | Near-record ease | The global financial crisis began within months |
| Nov 2008 | +3.07 | Lehman failure; credit markets freeze | Panic | The S&P 500 bottomed in Mar 2009, four months later |
| Apr 2020 | +0.31 | COVID crash — note how small the swing stayed | Brief fear, capped fast | Unprecedented Fed intervention; conditions never got truly tight |
| Jun 2021 | -0.69 | Meme-stock, SPAC and crypto exuberance | Loosest since the 1990s | The 2022 bear market followed within a year |
| Jul 2026 | -0.55 | Where the pendulum sits as of this update | Easy side — easier than ~69% of history | — |
Look at the two quietest readings in that table. In February 2007, conditions were about as easy as they had been in decades — the pendulum deep on the greed side — months before the global financial crisis began. In June 2021, the index touched its loosest level since the 1990s; 2022 delivered a bear market. That is Marks's core warning in data form: the moments when risk felt lowest were precisely the moments it was highest. And the reverse: July 1974 and November 2008, the two most fearful readings in the series, each came within months of a generational market bottom. None of this made timing easy — but knowing which half of the swing you were in was, in hindsight, most of the battle.
He'd redefine what risk even means. For Marks, risk is not volatility — not the size of the day-to-day wiggles. Risk is the probability of a permanent loss of capital. And his most unsettling observation is that risk is highest exactly when everyone believes there is none: when confidence is universal, prices leave no margin for error, and a single disappointment has nowhere soft to land. The calm days, in other words, are the ones to watch — which is exactly what the February 2007 and June 2021 readings above look like on a chart.
He'd think one level deeper. Marks's other signature idea is second-level thinking. First-level thinking says "this is a good company, so I'll buy it." Second-level thinking asks "everyone already knows it's a good company — so is that in the price, and what do I see that they don't?" It isn't about being smarter; it's about being more thorough and more willing to differ than the consensus, because you can only beat the crowd by departing from it.
Why any of this connects to us. We don't invest the way Marks does, and none of this is a prediction or a recommendation. But his framework maps cleanly onto something we do every morning: before deciding what to hold, we read the market's posture — is the environment leaning risk-on or risk-off? That "where is the pendulum" question is the first thing our engine answers each day, sealed before the open, where you can watch it be right and wrong over time. Marks's whole career is an argument that this humbler question — where are we now? — tends to matter more than the flashier one everyone else is asking: where are we going?
1. Marks's pendulum is measurable — and the data agrees with him: in 55 years, financial conditions sat near their "sensible middle" only about 6.5% of the time.
2. The riskiest readings in the series were the calmest ones — early 2007 and mid-2021, each followed by a major drawdown; the most fearful ones, 1974 and 2008, each came near a generational bottom.
3. "Where are we now?" is a humbler question than "where are we going?" — and it's the one that can actually be answered. A pattern to understand, not a prediction.
This is a thought experiment based on Howard Marks's publicly stated principles, not his current views or advice. Chart and table are built from real Chicago Fed NFCI data via FRED; past patterns are not predictions. Informational and entertainment content only. Not investment advice.