Howard Marks

As the market continues to rally, how should you invest your money? John Calamos, Calamos Investments and Howard Marks, Oaktree Capital, discuss. Howard Marks is finding good corporate debt in Europe in countries such as the UK and Germany.

H/T Value Investing World

Video and computer transcript embedded below:

happy camper, as you can imagine. the financial service industry was one of their biggest industries there and it’sobviously in trouble. yeah. well, i don’t think the depositors of the banks are very happy campers either, by the way. yeah. it’s a big industry for cyprus. yeah. i was a little bit more optimistic about greece, quite frankly. i’ve been going there for many years and i had a chance to meet with the government there and it’s the most optimistichat i’ve been for years, to be honest with you. i think they’re trying to do the right thing, which is taking thepublic sector and privatizing it. and i think that’s on the righttrack. i hope they succeed. but they seem to be on the righttrack, at least for now. so you want to buy greece? well, we’re looking at it. it’s an emerging market. right, right sure. so if you wait for everything to be perfect, you know, when is that the time to buy. you miss it, right. what about you, howard? would you be interested in looking at debt in europe right now? we don’t invest in sovereign and never have. sovereign requires a political analysis, which may be impossible or may not exist, per se. but we like corporatend we buy corporate debt in europe. we don’t go heavily into the periphery, but we are definitely active in europe. so, when you say, you know, we’re not going into the periphery, so the other areas, so you’re not necessarily looking at the italy and spain, but there are, obviously, other opportunities inward. well, primarily, germany and the uk are probably relatively safe. yeah. john, the last time we spoke, it was about a month ago. you said that the economy, this is the u.s., had recovered gh, excuse me, that the fed could turn off the spigot. now, the markets, of course, have gone through some big drops in the last few weeks. this new debate has occurred about whether or not the federal reserve should start winding down, tapering down this stimulus, by the summertime. do you still feel that way? you know, i do. i don’t think it’s working very well. i mean, it sure allows biggercompanies to access capital markets at very low rates. but if the idea is to create job growth, how do you create job growth, when job growth comes from small business and bank loans, there is no incentive for loans to be made by banks today. if we had a normal yield curve, which would be an increase in rates, they would have the incentive to loan to small business, which would create jobs growth. so i don’t, you know, obviously, the fear is, rates get out of hand on the upside, but if we were just to go back to what i would consider a normal yield curve, i think you would see more job growth than just keeping interest rates so low. what i’d like to add is, i agree with john, that numberone, business is not investing. number two, businesses don’tlike to invest when there’s a great deal of uncertainty. what’s the greatest source of uncertainty today? if you ask people, what do you wonder about the moment, the answer would be, when are they going to stop stimulating? what will be the effect?so as long as that is out there in the future, that will be a deterrent to growth. yeah. get it out of the way. start winding it down, start toshow that it won’t be fatal to the economy. this is such an important point you make. i actually moderated a panel onprivate equity a little while ago, which i’m going to tell everybody about in my observation today. but, basically, it was stunning to me that even with the record low level of rates, even with the record amount of cash on balance sheets, you’re not seeing more m&a. everybody on the panel said the same thing. the reason is is because of confidence. ceos do not have that confidence of predictability that you’re talking about. so given all of this, john, how do you want to be allocating capital in this market, being a growth investor? well, i think there’s stillopportunities. you mentioned the fixed income area, from a public point of view, not a pte investment point of view, the high-quality, high-yield market still looks attractive to us. you can get over a 6% coupon, and what’s more important is that duration is five or six years. so those markets have always acted better than the investment grade market if interest rates go up. so that’s attractive — and as far as europe goes, it’s not the country, it’s the company that you’re investing — you’re looking at corporate bonds from a company point of view, and not just a country point of view. of course. that’s what’s important. yeah, we’ve done a study recently, and it showed that if you take the high-yield bond index, take interest rates up 200 basis points, over a year, your loss would be about 2%. and so a 2% rise in rates would be a lot. a loss of 2% is far from fatal. i agree with john. i’ve got to get for take, john, on growth today. you look at technology and these stocks have really comedown. a stock like apple cut in half, apple, ibm, google. what’s wrong with growth right now? well, you know, you say the mark’s bouncing off a new high, not growth. this is the most undervalued that i’ve seen technology stock and growth stocks in . wynn, maria, wynn has growth stocks traded at a lower p.e. than the market p.e.and so what we have in here is a two-tier market. earch for yield has really boasted dividend-paying stocks to very high levels.and nothing against those companies, because they’re doing a good job. but growth valuations, because of the unpredictability of what’s going on, the market’s not very forward looking. so when you have p.e.s in growth stocks at this level, i think you have to — it’s a good place to be. now, is it going to happentomorrow or next week? i don’t know. but we can try and think more longer term, we think it’s a good place to be. so, give me your single best idea right now? before we go, give me one idea, both of you. not necessarily a stock or, you know, like an area or, you know, one idea. well, we still think technology, that sector, which has really lagged this year, quite a bit, is still a good place to be. so we think that’s going to eventually prove to be very, very beneficial. because you get two things. if we do see it come back, you get some earnings growth, but you get p.e. expansion. so even if earnings growth is not catching up, the p.e. expansion could make, you know, total return quite –and might get a dividend. and you might get a dividend. howard, do you have an idea for us before we go? i’m not a equity person, but our company likes real estate. buildings have been a great beneficiary of the surge for safety and income but lesser buildings in lesser cities and we think that they have not come back from the crisis and have a way to go. love it. thanks for sticking your neck out for us and giving us some ideas. john calamos, howard marks, we so appreciate your time tonight.