Speaker 1: Bloomberg Audio Studios, podcasts, radio news our investors looking past
Speaker 1: escalation given Trump's rat rake on a quick end to
Speaker 1: the wars. Let's discuss this and more with veteran investor
Speaker 1: Howard Mark's co chair of oak Tree Capital Management, which
Speaker 1: has more than two hundred billion dollars in assets under management.
Speaker 1: How it could have you with us. It's such a
Speaker 1: chaotic world. It does seem like traders are underprising the
Speaker 1: risk from Joe politics because even today all eyes on Nvidia.
Speaker 2: Well, you know, the world is chaotic. The future is
Speaker 2: never clear. Some people spend their time trying to figure
Speaker 2: out the future and pricing it. I say it's unclear,
Speaker 2: and we abstract from that, so, you know, we just
Speaker 2: try to look at individual companies and figure out which
Speaker 2: ones will grow, which one will repay their loans.
Speaker 1: And.
Speaker 2: Deal on that basis. We call that bottom up, not
Speaker 2: top down.
Speaker 1: Do you talk about how it is about intrinsic value?
Speaker 1: Everything else is belowny, But how do you get intrinsic
Speaker 1: value in a market that's overpriced? I mean valuations as
Speaker 1: kywriting especially on ESMP.
Speaker 2: Well, you say it's overpriced, I would say it's high priced.
Speaker 2: Overpriced is a judgment call, and you think about what
Speaker 2: you think something is worth, you compare how it's selling
Speaker 2: relative relative to that, and then in my opinion, that
Speaker 2: should determine whether or not you're aggressive or defensive. So
Speaker 2: I think we would agree that US stock valuations, for example,
Speaker 2: are on the high side relative to history. That would
Speaker 2: tell me to be a little less aggressive than usual,
Speaker 2: a little more defensive, but not necessarily to get out.
Speaker 2: You know, getting out is really a big step. Most
Speaker 2: of the time in my fifty five years in this
Speaker 2: business has been a mistake. Either you get out and
Speaker 2: it goes up, or you'll get out and it goes
Speaker 2: down and you forget to get back in and it
Speaker 2: goes up without you. So you know, it's just a
Speaker 2: matter of calibrating, in my opinion, your behavior between aggressiveness
Speaker 2: and defensiveness when things are a little high, as they
Speaker 2: are a little more defensive than usual. But this notion
Speaker 2: of risk on risk off in or out by your
Speaker 2: sell that's too black and white. It's not fitting for
Speaker 2: the world we live in.
Speaker 1: The thing is right now, we're seeing herd mentality, moms
Speaker 1: and pubs getting into everything that institutional invesis getting into
Speaker 1: and usually traditionally, historically that's the time to get out.
Speaker 2: Well, but again I was with you until you set out,
Speaker 2: because you know, just remember this and everybody you know,
Speaker 2: as I said, we don't we're not market timers, we're
Speaker 2: not macro forecasters. And I told you that before the break,
Speaker 2: and I insists it's true. You could have said, if
Speaker 2: you had a great foresight, you could have said, in
Speaker 2: twenty nineteen, I think there's going to be a pandemic,
Speaker 2: I'm going to get out. In twenty twenty one, you
Speaker 2: could have said, I think that Russia's going to invade Ukraine.
Speaker 2: I'm going to get out. In twenty two, you could
Speaker 2: have said, I think how mass will attack Israel, I'm
Speaker 2: going to get out. You would have been right about
Speaker 2: the events, but it would have cost you a lot
Speaker 2: of money. And we not only do we never know
Speaker 2: what's going to happen in the bigger world, but we
Speaker 2: also don't know how the market's going to react, And
Speaker 2: so to be dogmatic and to say it's high I'm
Speaker 2: getting out is a mistake. Warren Buffett, who always says
Speaker 2: it best, says don't bet against the United States, for example,
Speaker 2: And you know.
Speaker 1: Warren Buffett has taken money off the table, more than
Speaker 1: three hundred billion dollars worth.
Speaker 2: Why no, he says, there's nothing to buy. Valuations are high,
Speaker 2: But what percentage? You know, people look and they say, well,
Speaker 2: Buffett sold some stocks. Does that mean we should get out.
Speaker 2: What percentage of his stocks did he sell? Probably rather small,
Speaker 2: So it's not a broad statement. You know, if it's
Speaker 2: a little high, and I say, be less aggressive, if
Speaker 2: you want to sell two or three percent of your stocks,
Speaker 2: I understand. But Buffett's not selling all his stocks, and
Speaker 2: neither I think should anybody else.
Speaker 1: Howard you talk about how you hate making coals, you know, predictions, estimates.
Speaker 1: But Goldman came oot to say that it sees a
Speaker 1: further percent ten percent upside in the S and P
Speaker 1: from now through the end of twenty twenty five. Is
Speaker 1: Goldan right?
Speaker 2: Ten ten? Well, it's pretty good, isn't it. I mean,
Speaker 2: on the other hand, Goldman, I think it's fair to
Speaker 2: say put out a report three or four weeks ago
Speaker 2: which they said that the pe ratio on the S
Speaker 2: and P five hundred is high. So as opposed to
Speaker 2: ten percent average return over the last century, they're projecting
Speaker 2: three percent for the next decade, So that's rather cautionary.
Speaker 2: It's not get out, it's not sell, but it's you know,
Speaker 2: moderate your expectations. On the other hand, a ten percent
Speaker 2: game between now and the end of twenty five would
Speaker 2: be quite nice. So I think what this shows HESLNDA
Speaker 2: is that investing in the short run is very uncertain
Speaker 2: and nobody should think they really know what's coming, and
Speaker 2: most people should take an almost passive approach. The idea
Speaker 2: is it's good to invest. It's good to invest in
Speaker 2: the United States, it's good to invest over time, and
Speaker 2: it's bad to try to mastermind it in the short
Speaker 2: run with get in, get out now. If everybody gets
Speaker 2: it gives up on getting in and getting out, you
Speaker 2: may lose a few viewers. But the point is investing
Speaker 2: is a good thing. Do it early, do it a
Speaker 2: lot so that you can build the nest egg, grew
Speaker 2: it up.
Speaker 1: You talk about how it's hard to do it on
Speaker 1: a short term basis. Okay, let's take a long term basis.
Speaker 1: Four years the Trump administration, looking at who he has
Speaker 1: suggested intens of his cabinet pigs Lutnik for instance, for Commas,
Speaker 1: and probably walls for Treasury, how are you looking at that,
Speaker 1: how might that impact market sentiment? And how this plays out?
Speaker 2: Again, these things are very hard. Number one, what's going
Speaker 2: to happen? Nobody knows. His appointments are not firmed. They
Speaker 2: have yet to be confirmed. His policies are not known.
Speaker 2: What is he going to do? Nobody really knows what
Speaker 2: he's going to do. Number two? What else will be
Speaker 2: going on in the world. He's not the only show.
Speaker 2: It's complicated. Number three. How will the market react to
Speaker 2: all these things? Number four? The president's influence on most
Speaker 2: things is usually quite limited. Number five. As I said before,
Speaker 2: our investment, our economy is in good shape. So it
Speaker 2: in general things are going well in the United States
Speaker 2: and or better than most other places. And that's why
Speaker 2: things are high in the United States. So the situation
Speaker 2: is generally good, but you're paying a lot for it.
Speaker 2: We'd like to get a good situation at a bargain price.
Speaker 2: It's rarely the case. I don't think things are crazy
Speaker 2: high now, and I don't think it's time to get out.
Speaker 1: How are you reading into the president's relationship with Elon
Speaker 1: mask for instance, You know has been put in charge
Speaker 1: of the Department of Efficiency. We saw Trump at Mosque's
Speaker 1: events Spaceship SpaceX just today. Do you read into the
Speaker 1: potential of perhaps how Tesla might play, you know, might
Speaker 1: gain from that. Do you see the potential of EVS
Speaker 1: gaining from that? How? How do you read into that? Well?
Speaker 2: I'm not smart enough to know the answer to that question.
Speaker 2: I think that this is a very unusual situation, one
Speaker 2: we've rarely ever seen before, bromance, if you will, between
Speaker 2: a president and a founder of a company. There's no
Speaker 2: doubt about the fact that Musk is brilliant, idiosyncratic. People
Speaker 2: have been talking about increasing efficiency in government and eliminating
Speaker 2: fraud and waste for decades. I don't think anything's ever
Speaker 2: been done about it. And the question is I assume
Speaker 2: that what's going on means that Musk will do more
Speaker 2: about it than has been done in the past, and
Speaker 2: then we'll get to see whether it works. But you know,
Speaker 2: this is just one more thing which is so unpredictable
Speaker 2: and indeterminate that I don't think it's worth most investors
Speaker 2: doing anything about it.
Speaker 1: So no point piling into Tesla. No.
Speaker 2: No. The reasoning through which Trump's relationship with Musk and
Speaker 2: Musk's roll in government produces an improved outlook for Tesla
Speaker 2: is very attenuated. I wouldn't go there.
Speaker 1: Else in the world. China has been front and center
Speaker 1: with seeing stimulus in an attempt for China to revive
Speaker 1: the economy. Do you think China's doing enough? I mean,
Speaker 1: I know you see value in some Chinese stecks.
Speaker 2: China is attempting something very difficult. They had what I
Speaker 2: call the Chinese miracle. They had ten percent GDP growth
Speaker 2: a year for a few decades when they were coming
Speaker 2: into the modern era. A lot of that, or some
Speaker 2: of it, was built on stimulus. You can't stimulate your
Speaker 2: way to growth forever. They've tried to back off on
Speaker 2: the stimulus, but that has caused a growth slow down
Speaker 2: that they don't want to have the full brunt of
Speaker 2: that slowdown. So they're trying to kind of calibrate. That's
Speaker 2: the word I use. In many cases. They're trying to
Speaker 2: calibrate the right amount of stimulus to produce a good growth,
Speaker 2: but not an excessive rely on stimulus, and stimulus sometimes
Speaker 2: leads to unwise behavior. It's not hard to get it's
Speaker 2: not easy to get it right. I'm hoping they will.
Speaker 2: I know they're dedicated to test they understand the importance
Speaker 2: of five percent at GDP growth And let me just say,
Speaker 2: five percent sounds like a slowdown visus versus ten. But
Speaker 2: it's a well above average growth rate compared to the
Speaker 2: rest of the world.
Speaker 1: But you talk about how it's challenging for China, is
Speaker 1: it's having something that's so difficult. Why is in China
Speaker 1: a value trap? Why is it still you know, full
Speaker 1: of value?
Speaker 2: Well, I think because first of all, it has great
Speaker 2: potential to come into its own And you know, I
Speaker 2: mentioned before that the US situation is doing well but
Speaker 2: high priced. The Chinese situation has fundamental questions. But it's
Speaker 2: bargain price which is better? You know, you can't. It's
Speaker 2: all investing. It's a matter of relative choices with the
Speaker 2: risk that it's nascent.
Speaker 1: Recovery might be jeopardized by Trump's policies.
Speaker 2: And for the terrorists on the economy, Well, if you
Speaker 2: can tell me what Trump's really going to do as
Speaker 2: opposed to his rhetoric, and if you can tell me
Speaker 2: whether Trump's rhetoric is going to induce behavior on China's
Speaker 2: part that makes Trump back off from his rhetoric, then
Speaker 2: I may know the answer. But nobody can do that.
Speaker 1: Where does he value in China? Oh?
Speaker 2: You know, I'm not close enough to the operating level
Speaker 2: to be able to talk back.
Speaker 1: Everycing the end of the crisis in the property sector,
Speaker 1: for instance. Is there a sense that because it takes
Speaker 1: a recovery in the property sector to actually revive investor
Speaker 1: sentiment and confidence.
Speaker 2: Well, you know, any time you have an amount of
Speaker 2: building which is highly stimulated by the availability of capital,
Speaker 2: then you have to go through a period of adjustment
Speaker 2: in which the in which the buildings that have been
Speaker 2: built are absorbed and some have to be repurposed, some
Speaker 2: growth you have to grow into that space. And that's
Speaker 2: that doesn't happen overnight. And it doesn't happen because the
Speaker 2: government turns a policy lever. It's going to take some time.
Speaker 2: The question is not whether they have to do it.
Speaker 2: The question is will it bottom out? Will they will
Speaker 2: they will they stop adding excessively to the property stock,
Speaker 2: and will they put in place policies designed to create
Speaker 2: the absorption. My bias is that they will. And and
Speaker 2: you know, many people in the investment community describe China
Speaker 2: as uninvestable. To me, that word is music to my ears.
Speaker 2: I've made my whole career buying asset. It's that other
Speaker 2: people consider uninvestable, and when you do that, you have
Speaker 2: a chance of getting a bargain. So I think that
Speaker 2: clearly China is on the on the pile of things
Speaker 2: that people feel ill about, and it's on that pile
Speaker 2: that you find the bargains. That doesn't mean that you
Speaker 2: should buy everything on the pile, but that's where you
Speaker 2: look for the cast offs and the bargains.
Speaker 1: So you've been adding to your positions in China.
Speaker 2: Well, we have. We have a good position in China
Speaker 2: and have had for a long time.
Speaker 1: Can you share some of that position in any way?
Speaker 2: No, I don't go into names, but you know we're
Speaker 2: continuing to uh to invest in China carefully, and you know,
Speaker 2: when the when the fundamental situation is uncertain, you have
Speaker 2: to take care. But the available the availability of assets
Speaker 2: at be and down prices is a great starting point.
Speaker 1: All right, how would we have to live it? There
Speaker 1: have been a pleasure having you with us.
Speaker 2: Thank you.
Speaker 1: Howard Marks, co chair of oak Tree Capital Management,