WEBVTT - Howard Marks Talks China and Trump Presidency

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news our investors looking past

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<v Speaker 1>escalation given Trump's rat rake on a quick end to

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<v Speaker 1>the wars. Let's discuss this and more with veteran investor

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<v Speaker 1>Howard Mark's co chair of oak Tree Capital Management, which

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<v Speaker 1>has more than two hundred billion dollars in assets under management.

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<v Speaker 1>How it could have you with us. It's such a

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<v Speaker 1>chaotic world. It does seem like traders are underprising the

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<v Speaker 1>risk from Joe politics because even today all eyes on Nvidia.

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<v Speaker 2>Well, you know, the world is chaotic. The future is

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<v Speaker 2>never clear. Some people spend their time trying to figure

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<v Speaker 2>out the future and pricing it. I say it's unclear,

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<v Speaker 2>and we abstract from that, so, you know, we just

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<v Speaker 2>try to look at individual companies and figure out which

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<v Speaker 2>ones will grow, which one will repay their loans.

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<v Speaker 1>And.

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<v Speaker 2>Deal on that basis. We call that bottom up, not

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<v Speaker 2>top down.

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<v Speaker 1>Do you talk about how it is about intrinsic value?

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<v Speaker 1>Everything else is belowny, But how do you get intrinsic

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<v Speaker 1>value in a market that's overpriced? I mean valuations as

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<v Speaker 1>kywriting especially on ESMP.

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<v Speaker 2>Well, you say it's overpriced, I would say it's high priced.

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<v Speaker 2>Overpriced is a judgment call, and you think about what

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<v Speaker 2>you think something is worth, you compare how it's selling

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<v Speaker 2>relative relative to that, and then in my opinion, that

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<v Speaker 2>should determine whether or not you're aggressive or defensive. So

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<v Speaker 2>I think we would agree that US stock valuations, for example,

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<v Speaker 2>are on the high side relative to history. That would

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<v Speaker 2>tell me to be a little less aggressive than usual,

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<v Speaker 2>a little more defensive, but not necessarily to get out.

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<v Speaker 2>You know, getting out is really a big step. Most

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<v Speaker 2>of the time in my fifty five years in this

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<v Speaker 2>business has been a mistake. Either you get out and

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<v Speaker 2>it goes up, or you'll get out and it goes

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<v Speaker 2>down and you forget to get back in and it

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<v Speaker 2>goes up without you. So you know, it's just a

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<v Speaker 2>matter of calibrating, in my opinion, your behavior between aggressiveness

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<v Speaker 2>and defensiveness when things are a little high, as they

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<v Speaker 2>are a little more defensive than usual. But this notion

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<v Speaker 2>of risk on risk off in or out by your

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<v Speaker 2>sell that's too black and white. It's not fitting for

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<v Speaker 2>the world we live in.

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<v Speaker 1>The thing is right now, we're seeing herd mentality, moms

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<v Speaker 1>and pubs getting into everything that institutional invesis getting into

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<v Speaker 1>and usually traditionally, historically that's the time to get out.

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<v Speaker 2>Well, but again I was with you until you set out,

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<v Speaker 2>because you know, just remember this and everybody you know,

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<v Speaker 2>as I said, we don't we're not market timers, we're

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<v Speaker 2>not macro forecasters. And I told you that before the break,

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<v Speaker 2>and I insists it's true. You could have said, if

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<v Speaker 2>you had a great foresight, you could have said, in

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<v Speaker 2>twenty nineteen, I think there's going to be a pandemic,

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<v Speaker 2>I'm going to get out. In twenty twenty one, you

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<v Speaker 2>could have said, I think that Russia's going to invade Ukraine.

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<v Speaker 2>I'm going to get out. In twenty two, you could

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<v Speaker 2>have said, I think how mass will attack Israel, I'm

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<v Speaker 2>going to get out. You would have been right about

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<v Speaker 2>the events, but it would have cost you a lot

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<v Speaker 2>of money. And we not only do we never know

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<v Speaker 2>what's going to happen in the bigger world, but we

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<v Speaker 2>also don't know how the market's going to react, And

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<v Speaker 2>so to be dogmatic and to say it's high I'm

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<v Speaker 2>getting out is a mistake. Warren Buffett, who always says

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<v Speaker 2>it best, says don't bet against the United States, for example,

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<v Speaker 2>And you know.

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<v Speaker 1>Warren Buffett has taken money off the table, more than

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<v Speaker 1>three hundred billion dollars worth.

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<v Speaker 2>Why no, he says, there's nothing to buy. Valuations are high,

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<v Speaker 2>But what percentage? You know, people look and they say, well,

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<v Speaker 2>Buffett sold some stocks. Does that mean we should get out.

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<v Speaker 2>What percentage of his stocks did he sell? Probably rather small,

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<v Speaker 2>So it's not a broad statement. You know, if it's

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<v Speaker 2>a little high, and I say, be less aggressive, if

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<v Speaker 2>you want to sell two or three percent of your stocks,

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<v Speaker 2>I understand. But Buffett's not selling all his stocks, and

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<v Speaker 2>neither I think should anybody else.

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<v Speaker 1>Howard you talk about how you hate making coals, you know, predictions, estimates.

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<v Speaker 1>But Goldman came oot to say that it sees a

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<v Speaker 1>further percent ten percent upside in the S and P

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<v Speaker 1>from now through the end of twenty twenty five. Is

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<v Speaker 1>Goldan right?

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<v Speaker 2>Ten ten? Well, it's pretty good, isn't it. I mean,

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<v Speaker 2>on the other hand, Goldman, I think it's fair to

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<v Speaker 2>say put out a report three or four weeks ago

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<v Speaker 2>which they said that the pe ratio on the S

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<v Speaker 2>and P five hundred is high. So as opposed to

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<v Speaker 2>ten percent average return over the last century, they're projecting

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<v Speaker 2>three percent for the next decade, So that's rather cautionary.

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<v Speaker 2>It's not get out, it's not sell, but it's you know,

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<v Speaker 2>moderate your expectations. On the other hand, a ten percent

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<v Speaker 2>game between now and the end of twenty five would

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<v Speaker 2>be quite nice. So I think what this shows HESLNDA

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<v Speaker 2>is that investing in the short run is very uncertain

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<v Speaker 2>and nobody should think they really know what's coming, and

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<v Speaker 2>most people should take an almost passive approach. The idea

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<v Speaker 2>is it's good to invest. It's good to invest in

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<v Speaker 2>the United States, it's good to invest over time, and

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<v Speaker 2>it's bad to try to mastermind it in the short

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<v Speaker 2>run with get in, get out now. If everybody gets

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<v Speaker 2>it gives up on getting in and getting out, you

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<v Speaker 2>may lose a few viewers. But the point is investing

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<v Speaker 2>is a good thing. Do it early, do it a

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<v Speaker 2>lot so that you can build the nest egg, grew

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<v Speaker 2>it up.

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<v Speaker 1>You talk about how it's hard to do it on

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<v Speaker 1>a short term basis. Okay, let's take a long term basis.

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<v Speaker 1>Four years the Trump administration, looking at who he has

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<v Speaker 1>suggested intens of his cabinet pigs Lutnik for instance, for Commas,

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<v Speaker 1>and probably walls for Treasury, how are you looking at that,

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<v Speaker 1>how might that impact market sentiment? And how this plays out?

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<v Speaker 2>Again, these things are very hard. Number one, what's going

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<v Speaker 2>to happen? Nobody knows. His appointments are not firmed. They

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<v Speaker 2>have yet to be confirmed. His policies are not known.

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<v Speaker 2>What is he going to do? Nobody really knows what

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<v Speaker 2>he's going to do. Number two? What else will be

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<v Speaker 2>going on in the world. He's not the only show.

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<v Speaker 2>It's complicated. Number three. How will the market react to

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<v Speaker 2>all these things? Number four? The president's influence on most

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<v Speaker 2>things is usually quite limited. Number five. As I said before,

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<v Speaker 2>our investment, our economy is in good shape. So it

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<v Speaker 2>in general things are going well in the United States

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<v Speaker 2>and or better than most other places. And that's why

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<v Speaker 2>things are high in the United States. So the situation

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<v Speaker 2>is generally good, but you're paying a lot for it.

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<v Speaker 2>We'd like to get a good situation at a bargain price.

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<v Speaker 2>It's rarely the case. I don't think things are crazy

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<v Speaker 2>high now, and I don't think it's time to get out.

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<v Speaker 1>How are you reading into the president's relationship with Elon

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<v Speaker 1>mask for instance, You know has been put in charge

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<v Speaker 1>of the Department of Efficiency. We saw Trump at Mosque's

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<v Speaker 1>events Spaceship SpaceX just today. Do you read into the

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<v Speaker 1>potential of perhaps how Tesla might play, you know, might

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<v Speaker 1>gain from that. Do you see the potential of EVS

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<v Speaker 1>gaining from that? How? How do you read into that? Well?

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<v Speaker 2>I'm not smart enough to know the answer to that question.

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<v Speaker 2>I think that this is a very unusual situation, one

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<v Speaker 2>we've rarely ever seen before, bromance, if you will, between

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<v Speaker 2>a president and a founder of a company. There's no

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<v Speaker 2>doubt about the fact that Musk is brilliant, idiosyncratic. People

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<v Speaker 2>have been talking about increasing efficiency in government and eliminating

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<v Speaker 2>fraud and waste for decades. I don't think anything's ever

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<v Speaker 2>been done about it. And the question is I assume

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<v Speaker 2>that what's going on means that Musk will do more

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<v Speaker 2>about it than has been done in the past, and

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<v Speaker 2>then we'll get to see whether it works. But you know,

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<v Speaker 2>this is just one more thing which is so unpredictable

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<v Speaker 2>and indeterminate that I don't think it's worth most investors

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<v Speaker 2>doing anything about it.

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<v Speaker 1>So no point piling into Tesla. No.

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<v Speaker 2>No. The reasoning through which Trump's relationship with Musk and

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<v Speaker 2>Musk's roll in government produces an improved outlook for Tesla

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<v Speaker 2>is very attenuated. I wouldn't go there.

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<v Speaker 1>Else in the world. China has been front and center

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<v Speaker 1>with seeing stimulus in an attempt for China to revive

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<v Speaker 1>the economy. Do you think China's doing enough? I mean,

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<v Speaker 1>I know you see value in some Chinese stecks.

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<v Speaker 2>China is attempting something very difficult. They had what I

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<v Speaker 2>call the Chinese miracle. They had ten percent GDP growth

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<v Speaker 2>a year for a few decades when they were coming

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<v Speaker 2>into the modern era. A lot of that, or some

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<v Speaker 2>of it, was built on stimulus. You can't stimulate your

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<v Speaker 2>way to growth forever. They've tried to back off on

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<v Speaker 2>the stimulus, but that has caused a growth slow down

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<v Speaker 2>that they don't want to have the full brunt of

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<v Speaker 2>that slowdown. So they're trying to kind of calibrate. That's

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<v Speaker 2>the word I use. In many cases. They're trying to

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<v Speaker 2>calibrate the right amount of stimulus to produce a good growth,

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<v Speaker 2>but not an excessive rely on stimulus, and stimulus sometimes

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<v Speaker 2>leads to unwise behavior. It's not hard to get it's

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<v Speaker 2>not easy to get it right. I'm hoping they will.

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<v Speaker 2>I know they're dedicated to test they understand the importance

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<v Speaker 2>of five percent at GDP growth And let me just say,

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<v Speaker 2>five percent sounds like a slowdown visus versus ten. But

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<v Speaker 2>it's a well above average growth rate compared to the

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<v Speaker 2>rest of the world.

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<v Speaker 1>But you talk about how it's challenging for China, is

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<v Speaker 1>it's having something that's so difficult. Why is in China

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<v Speaker 1>a value trap? Why is it still you know, full

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<v Speaker 1>of value?

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<v Speaker 2>Well, I think because first of all, it has great

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<v Speaker 2>potential to come into its own And you know, I

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<v Speaker 2>mentioned before that the US situation is doing well but

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<v Speaker 2>high priced. The Chinese situation has fundamental questions. But it's

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<v Speaker 2>bargain price which is better? You know, you can't. It's

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<v Speaker 2>all investing. It's a matter of relative choices with the

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<v Speaker 2>risk that it's nascent.

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<v Speaker 1>Recovery might be jeopardized by Trump's policies.

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<v Speaker 2>And for the terrorists on the economy, Well, if you

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<v Speaker 2>can tell me what Trump's really going to do as

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<v Speaker 2>opposed to his rhetoric, and if you can tell me

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<v Speaker 2>whether Trump's rhetoric is going to induce behavior on China's

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<v Speaker 2>part that makes Trump back off from his rhetoric, then

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<v Speaker 2>I may know the answer. But nobody can do that.

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<v Speaker 1>Where does he value in China? Oh?

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<v Speaker 2>You know, I'm not close enough to the operating level

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<v Speaker 2>to be able to talk back.

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<v Speaker 1>Everycing the end of the crisis in the property sector,

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<v Speaker 1>for instance. Is there a sense that because it takes

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<v Speaker 1>a recovery in the property sector to actually revive investor

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<v Speaker 1>sentiment and confidence.

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<v Speaker 2>Well, you know, any time you have an amount of

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<v Speaker 2>building which is highly stimulated by the availability of capital,

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<v Speaker 2>then you have to go through a period of adjustment

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<v Speaker 2>in which the in which the buildings that have been

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<v Speaker 2>built are absorbed and some have to be repurposed, some

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<v Speaker 2>growth you have to grow into that space. And that's

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<v Speaker 2>that doesn't happen overnight. And it doesn't happen because the

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<v Speaker 2>government turns a policy lever. It's going to take some time.

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<v Speaker 2>The question is not whether they have to do it.

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<v Speaker 2>The question is will it bottom out? Will they will

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<v Speaker 2>they will they stop adding excessively to the property stock,

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<v Speaker 2>and will they put in place policies designed to create

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<v Speaker 2>the absorption. My bias is that they will. And and

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<v Speaker 2>you know, many people in the investment community describe China

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<v Speaker 2>as uninvestable. To me, that word is music to my ears.

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<v Speaker 2>I've made my whole career buying asset. It's that other

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<v Speaker 2>people consider uninvestable, and when you do that, you have

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<v Speaker 2>a chance of getting a bargain. So I think that

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<v Speaker 2>clearly China is on the on the pile of things

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<v Speaker 2>that people feel ill about, and it's on that pile

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<v Speaker 2>that you find the bargains. That doesn't mean that you

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<v Speaker 2>should buy everything on the pile, but that's where you

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<v Speaker 2>look for the cast offs and the bargains.

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<v Speaker 1>So you've been adding to your positions in China.

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<v Speaker 2>Well, we have. We have a good position in China

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<v Speaker 2>and have had for a long time.

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<v Speaker 1>Can you share some of that position in any way?

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<v Speaker 2>No, I don't go into names, but you know we're

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<v Speaker 2>continuing to uh to invest in China carefully, and you know,

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<v Speaker 2>when the when the fundamental situation is uncertain, you have

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<v Speaker 2>to take care. But the available the availability of assets

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<v Speaker 2>at be and down prices is a great starting point.

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<v Speaker 1>All right, how would we have to live it? There

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<v Speaker 1>have been a pleasure having you with us.

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<v Speaker 2>Thank you.

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<v Speaker 1>Howard Marks, co chair of oak Tree Capital Management,