Videos

Oaktree Capital Co-Chairman Howard Marks: EMs look Underpriced

CNBC Exclusive: CNBC Transcript: Oaktree Capital Co-Chairman Howard Marks Speaks with CNBC’s Brian Sullivan Today

Howard Marks oaktree capital value investing value investors valuation metrics famous investors PE ratio PB ratio EV/EBITDA PEG ratio

WHEN: Today, Thursday, January 31, 2019

WHERE: CNBC’s “Fast Money Halftime Report”— live from the TIGER 21 Conference in Boca Raton, FL

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Oaktree Capital Co-Chairman Howard Marks and CNBC’s Brian Sullivan on CNBC’s “Fast Money Halftime Report” (M-F 12PM – 1PM) today, Thursday, January 31st. The following is a link to video from the interview on CNBC.com:

Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 hedge fund letters, conference, scoops etc

Oaktree Capital Co-Chairman Howard Marks says emerging markets look underpriced

All references must be sourced to CNBC.

SCOTT WAPNER: We have taken through the major stories of the day, clearly in the market, and sort of the big picture view. We’re going to get another view right now from a legendary investor. Howard Marks is with Brian Sullivan at the TIGER 21 Conference in Boca Raton. That’s an exclusive interview with the Co-Chairman of Oaktree. Brian, take it away with Mr. Marks.

BRIAN SULLIVAN: Alright. Thank you Scott. Yeah, I know that Howard has been on “Halftime Report” with you many times. But it’s good to see you here in Florida, as well, Howard. Thank you.

Oaktree Capital Co-Chairman Howard Marks: Thank you. It’s nice to be here.

BRIAN SULLIVAN: You know, in your new book “Mastering the Market Cycle: Getting the Odds on Your Side,” I think it’s important now because yesterday the Fed made this huge policy u-turn. Is the Fed on our side? Has the Fed’s policy shift gotten the odds on investors’ side so to speak?

HOWARD MARKS: Arguably, it has improved the odds for the near-term, possibly at the expense of the long-term. You know, the Fed sometimes appears to have taken on the job of keeping the markets going. But to do that, you have to do things you wouldn’t otherwise do which may be not so good for the long-term.

BRIAN SULLIVAN: Do you think the Fed is trying to keep the market going?

HOWARD MARKS: Well, you know, they’re certainly trying to keep business on a good keel. And they’re trying to – you know, they were interested in having higher interest rates and a slimmer balance sheet. But when that appeared to threaten the vitality of business, they retreated from that.

BRIAN SULLIVAN: Bad move?

HOWARD MARKS: He’s smarter than I am. I’m not going to tell --

BRIAN SULLIVAN: I don’t know about that. You are the billionaire.

HOWARD MARKS: I’m not going to tell him what he should have done.

BRIAN SULLIVAN: But, okay, let me ask in a different way: for most of last year, call it 10 months -- maybe 11 months, we were optimistic. In December, the world was ending. Stocks crashed, everything was terrible. Now we’re having this great January again. What is happening? What has changed?

HOWARD MARKS: Well, Brian, you know, it’s danger to look for rationality in the market. So much of what happens is psychology and unpredictable and inexplicable. I wrote a memo in February of ’16 when the market got off to such a terrible start called "On the Couch,” because I think once in a while, the market needs a trip to the shrink. And I said that in the real world things fluctuate between pretty good and not so hot. But in the market from flawless to hopeless. And in the fourth quarter, the people who were unworried for the first nine months of ’18 became petrified and now they’re unworried again.

BRIAN SULLIVAN: So, okay, I know you like to study psychology, too. So when we talk about market cycles, the basis your book. Why do smart, educated, rational otherwise logical humans make such dumb investing decisions sometimes and sell at the bottom?

HOWARD MARKS: Well, how many people really are in control of their emotion rather than vice versa? That’s really the question. You know, people get excited at the top and buy when prices are at their highest. And they get depressed and sell at the bottom when prices are at their lowest. And they just shouldn’t.

BRIAN SULLIVAN: And you buy from them.

HOWARD MARKS: Well, we try. We try. I mean, if you think about it, the person with the average insight and the average emotion participates in the swings of the market. Only if you are different can you profit from the swings of the market.

BRIAN SULLIVAN: We just talked about Apple. I think their old motto was think different. Okay, how about this: the market cycle, I will venture to guess, Howard, having perused the book and seen you speak, talk to Scott, et cetera, is we’re closer to the end of the cycle than the beginning. Fair statement. Okay. So is there any asset class or anything right now that looks still underpriced to you, a good value right now?

HOWARD MARKS: Well, what I tend to like are the things that have done worst. And so what stands out there for me is the emerging markets. And they have been beat up. And if this is not the time, then the time is coming.

BRIAN SULLIVAN: Emerging equity or emerging credit?

HOWARD MARKS: Both. Both. You know, we’re actually in both and we’re generally constructive on both.

BRIAN SULLIVAN: Anything you see right now that is spectacularly overpriced, avoid at all costs?

HOWARD MARKS: You know, it’s -- we don’t have extremes of optimism and euphoria like that. And the actions of December and the fourth quarter did bring a lot of things into line. I don’t see anything which is in really an egregious bubble.

BRIAN SULLIVAN: Is the Fed going to bring us into another bubble if they cut rates this year, Howard?

HOWARD MARKS: Cut rates? Well –

BRIAN SULLIVAN: They could.

HOWARD MARKS: Well, that -- I mean, it’s kind of like you go to a doctor and he pulls out a really big hypodermic and you say ‘I must have a problem.’ If the Fed starts cutting rates then they think we have a big problem, because they -- through their actions to date, they indicated rates should be higher than they are.

BRIAN SULLIVAN: Yeah, and so they made this wild shift yesterday.

HOWARD MARKS: Right. Right. And so, you know, if they were to cut rates, that would be an extreme action. I’d be surprised.

BRIAN SULLIVAN: Would you be worried then?

HOWARD MARKS: Well, you’d have to -- you know, I wrote in I guess it was about 20 years ago, when the Fed cut by -- no, it must have been in ’07, maybe in September of ’07 and the Fed cut by a half. And my reaction is what does Greenspan know that we don’t know? And if they cut this year, that would be my reaction again.

BRIAN SULLIVAN: Well, I don’t know about Greenspan but I know Scott Wapner who you know well has a question for you he would like to ask. Scott.

HOWARD MARKS: Please do.

SCOTT WAPNER: Howard, it’s nice to see you and thanks for being on the program. I’m looking at a recent paper and it talks about anti-capitalism as something that you are now concerned about, I think is a fair way to put it. You’ve certainly heard some of the winds blowing from corners in Washington from some of the politicians, new and old, we can say, who are raising issues that drive to the heart of that. Can you expand on what your worries in that area are right now?

HOWARD MARKS: Well, in recent years, of course, economic growth has been slow. The tide has not been lifting all boats. Income inequality has expanded. The people not benefitting from that income inequality are sore, understandably. And so I think there is a rising tide of anti-capitalism. And we should be concerned about that. We have a machine in this country that makes it successful. Based on democracy, our freedoms, and also I think the economy, and the way it operates in a free market mode. And you know, the cost of capitalism is that there are some people who succeed a lot and some people who don’t succeed. And that’s undesirable. I think we should have a safety net for them. But I still think we shouldn’t throw out the system.

BRIAN SULLIVAN: And there’s two types of inequality: there’s income inequality – people actually paid to do a job – and then there’s wealth inequality which is the value of the assets, obviously. Do you think the Fed’s policies have exacerbated wealth inequality?

HOWARD MARKS: Well clearly they have. It’s been a -- exacerbate makes it sound like they shouldn’t have done it. They did to get us out of the global financial crisis what they had to do. A side effect of that was asset inflation which, of course, only benefited the people who own assets and that has created a widening of the net worth gulf.

SCOTT WAPNER: Howard, I have another question for you. And it’s related to another Howard -- that being Schultz. And I’m wondering what you make of his potential candidacy and some of the things that he’s had to say this week.

HOWARD MARKS: Well, I’m not a politician and I’m not an expert in politics. You know, I know Howard a bit, and obviously, he’s a smart guy. And the good news is that I think he’s going to operate from a position of doing what he thinks is right and he knows a lot about how the system works as opposed to pandering to populism. So I think that’s good. The idea of whether an independent can win and cannot have a deleterious effect on the outcome of the election is something to be debated and possibly seen.

BRIAN SULLIVAN: How much do, if at all, to follow up on Scott’s question, do elections matter to investors? When you look at your framework of where are we going to deploy capital? Do you say, ‘Well, if this person wins, we’re going to do that, if that person wins, we’re going to do this’?

HOWARD MARKS: Well, not to me, Brian. And by the way, so if you rewind the tape two and a half years, there were two things we were sure of: number one, Hillary Clinton would win. And number two, if Donald Trump won the market would go down. So instead, Trump won and the market went up. And if that’s not enough to convince you we don’t neat what the future holds, then you’re missing the movie.

BRIAN SULLIVAN: And what does it tell you, though, about human psychology or about the markets?

HOWARD MARKS: Unpredictable. Unpredictable.

BRIAN SULLIVAN: But how do we invest around unpredictability? Now we’re getting a little Meta.

HOWARD MARKS: We invest by being long-term investors in assets of quality, and assets that have a good future. We don’t say ‘Well, what’s the market going to do next month?’ or ‘Which group is going to be favored?’ Or that kind of thing. You can -- we’re value investors.

BRIAN SULLIVAN: So aside from – we’ve got about 45 seconds – aside from emerging markets, what looks good value to you today, Howard?

HOWARD MARKS: That’s about it. I mean, look--

BRIAN SULLIVAN: That’s it?

HOWARD MARKS: There are areas in real estate that we like. There are pockets of infrastructure investing that we like. Most of the things that are -- that are attractive are hard for the individual investor to access.

BRIAN SULLIVAN: They can going to Oaktree. Howard Marks.

HOWARD MARKS: Thanks Brian.

BRIAN SULLIVAN: New book "Mastering the Market Cycle: Getting the Odds on Your Side.” Great stuff, Howard. Appreciate your time with us here today.

HOWARD MARKS: Pleasure to be here.

BRIAN SULLIVAN: Scott.

SCOTT WAPNER: Yep, gentleman, thank you very much. Brian, Howard, hope to see you back here in New York sometime soon. It was great getting your insights today, as well. Very thoughtful investor who has been de-risking, I think, for some time.