Howard Marks, Oaktree Capital chairman, shares his thoughts on what’s driving the markets and how to invest with caution (September 10th).
Howard Marks Video and transcript below
how do you keep your money safe in uncertain times? howard marks joins us, the chairman of oaktree capital. good to you have here. thank you very much, carl. uncertain is the word of the day, isn’t it? it certainly is. what do you make of where we are? i think we’re in the most uncertain times of my career and there are so many loose things out there that could happen. the good news is that everybody knows we’re in uncertain times. you know, the riskiest thing is the belief that there’s no risk. that’s what people felt in ’07, that’s what brought on the crisis. they acted as if there was no risk. i don’t think anybody’s acting that way today so that’s a positive. today things are in pretty good balance. you address what central banks have done around the world. i assume you’re looking at where top line growth is coming from in corporate america. what is your best thinking about where central banks go from here? central banks have had a profound it on the market over the last five years. by bringing down interest rates, people can no longer get a substantial return on safe investments. so they’ve had to go at the risk curve to make some money. that’s what the central banks wanted them to do, to reignite risk bearing, which is the only way to get out of a crisis. they’ve accomplished that. so risk bearing has been the order of the day in the markets for the last few years. and we all have to be conscious when risk is being embraced. we all — and so i argue that caution, it has to be a very important part of our actions these days. howard, i’m surprised to hear you say that this is the most uncertain time in your career. i mean, you’ve written many timesemember in ’09, or ’08, that was uncertain. what about now during the height of the crisis makes it more uncertain now? i guess you’re right. by now i mean the last five years. okay. but i think that a profound change that has happened in the world, go back to ’06, ’07. what did people believe? people believed they knew exactly what made the world tick, exactly what it would look like five years later and how anything that went wrong could be fixed. nobody thinks that way today. there is not that certainty. no. i think on the one hand it’s in response to uncertain realities and on the other hand it’s a positive because the world is safer when people are not so cocksure. doesn’t it diminish some of those animal spirits and the willingness to take risks among ceos to spend money, which would result in economic growth? that’s a good point. my last memo was on the subject of confidence. when there’s more confidence, everybody acts more expansively, we get more growth. sometimes we get excessive growth if there’s excessive confidence and then we get into the trouble of boom and crash. but you’re right, i think the world is being held today in many ways by a lack of confidence because people are feeling the uncertainty that i’m talking about. if you are a ceo today, you’re not going to run out and build a new factory because you’re highly confident we’re going to have the top line growth that carl talked about in the next three years. yet for those people that are paid for take risk and take the reward for that, there was a note out by morgan stanley where an equity analyst went positive and he did that because he said there was no real big convincing bear case for equities out there. you and i can write a long list of things that might happen, but is there a really big stalking bear? answer possibly no and no distress debt. but would you agree with the equity market, that it would continue to reset and grow? i would. equities have not been ground zero for this strong cash inflow and optimism. that has flowed to credit because people are looking for income. after the ’00 to ’03, people flooded into bonds, bonds went up, that made equities cheaper. on balance i think equities are more cheap than credit today. there are still plusses and minuses, but i’m attracted to the fact that, for example, many institutions moved out of equities and i don’t think have moved back in yet. finally, howard, we keep hearing about anecdotally players who want to take money off u.s. and into europe where they think returns are going to be a little better over the next couple of years. is that where you are? we’re not stock investors, we’re credit investors. we’re finding credit opportunities in europe but i would mention in the u.s. we have an economy which is doing pretty well, which is pretty sure to do pretty well. so we have a narrow range of outcomes and they’re mostly pretty good. in europe we have a broader range of possible outcomes, some are not as good as what we face in the u.s. so maybe more up side in europe, maybe a lower starting point but certainly more uncertainty. it’s good to have you back. see you next time, howard marks.