On Aug. 8, Howard Marks (Trades, Portfolio) appeared on Bloomberg. Marks is the chairman of Oaktree Capital (OAK, Financial) and the author of great investment books like "Mastering the Market Cycle."
Current markets
Marks started by discussing the market situation: The going is slow in distress. The economy is too good. Very few companies get into trouble. Capital markets are too generous. If companies need refinancing, they can get it. Healthy companies are not getting into trouble. There is some distress, but it's in volatile areas like retail and energy.
Fed is on the wrong track
Marks pointed out that usually, we stimulate the economy when it is doing poorly. Usually, we don't stimulate the economy after 10 good years. We have the lowest unemployment rate in 50 years. The Fed can stimulate. But should it? Marks said he did not think so. It is not the job of the Fed to ensure there is never a recession. Powell said the Fed would do everything to keep the expansion going. Marks said that is wrong.
Outlook for investors
Savers, lenders and people with money are going to have trouble getting good returns, Marks speculated. All returns are based on the base rate. The problem with lowering rates is that it causes asset inflation.
For the last few years, Marks' message has consistently been that this is a time for caution. See a previous article on Marks here. At that time, he believed the least bad areas to invest were:
- Private credit.
- Real estate (outside the big cities).
- Emerging markets.
Oaktree Capital is a specialized distressed credit investor. It does hold shares because it runs a few other strategies and also retains bonds through bankruptcy that end up turning into equity holdings. In addition, a 13-F filing doesn't show foreign equities or bonds. Having said that, its five largest equity positions are:
- Vistra Energy (VST, Financial)
- Torm (TRMD, Financial)
- Ally Financial (ALLY, Financial)
- Star Bulk Carriers (SBLK, Financial)
- NMI Holdings (NMIH, Financial)
Disclosure No positions.
Read more here:Â
Bill Miller Is Starting to Sound More CautiousÂ
Dan Loeb: No Recession on the Immediate HorizonÂ
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
