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[Interview] Investment Insights

Howard Marks says should stay in the market now

Oaktree Capital chair sees moderate impact on asset prices of Fed's accelerated tapering and rate hikes

By Dec 30, 2021 (Gmt+09:00)

Howard Marks during an interview with The Korea Economic Daily at Oacktree's New York office on Dec. 28.
Howard Marks during an interview with The Korea Economic Daily at Oacktree's New York office on Dec. 28.

NEW YORK -- US stock markets remain high but their prices seem reasonable at the current level of interest rates near historic lows, said Oaktree Capital Management’s co-founder and Co-Chairman Howard Marks on Dec. 28.

Next year, interest rate hikes and the tapering of the US monthly bond purchase program may weigh on asset prices as the Federal Reserve is expected to speed up the reduction of its stimulus package.

But its impact would be only "moderate" since the reduced bond purchase program does not mean the Fed is ending the stimulus package in the immediate future, he told the Korea Economic Daily.

"If that decline is likely to be moderate and if you don't know when it's going to take place, then you should stay in and not disrupt your investments and continue to participate in the long-term benefits of being an investor," he said in an interview.

Marks advised investors to keep a balance between aggressive and defensive stances, and recommended technology stocks that contribute to productivity growth to make up for falling birth rates.


In his memo published on July 29, the chairman said asset prices at the time were not irrationally high relative to record-low interest rates, even after their prices skyrocketed to historic highs.

The following is an edited transcript of the interview:

REASONABLE PRICES

"Today, we have the lowest interest rates in history. So it would be reasonable if we had the highest prices in history. If you look at the S&P 500 Index, or if you look at individual stocks, I think that for the most part, stock prices are reasonable ... for today's level of interest (rates)."

"But if interest rates go up, it's reasonable to expect these prices to decline. So if that's the case, then you have to have some concern about the level of the prices of all assets."

"The likely developments may be negative for asset prices, but I don't think a crash. I think a moderate decline."

ON VALUE STOCKS

"Now we know everything changes very rapidly. And so we can't have an approach to say this is a great company."

"We have to anticipate how the company will change and how it will be affected by competitors, maybe new competitors. The Fed is expected to speed up tapering, or will speed up interest rate increases. So will this serve as an opportunity for economic and market growth to slow or even stuff?"

"My point is that reducing the bond buying or tapering is still stimulative. Just less so. It's not contractionary right now. .. They're still stimulating. But less so."

ON TECHNOLOGY STOCKS

"If the number of hours worked declines because of low fertility, or grows very slowly, then it's very hard for the economy to grow very fast."

"And any growth in the economy would have to come from increases in productivity. Productivity is rising. This brings us back to Cathie Wood and technology and automation. So technology has the potential to increase the output per hour."

(Note: Cathie Wood is founder, CEO and CIO of Ark Invest, which made its name from aggressive bets and handsome returns on technology stocks such as Tesla Inc.)

BACK TO NORMAL STANCE

"The urgency to sell on the part of investors evaporated, and there was no reason anymore to be aggressive," 

"I think that the markets have come too far and have risen too far to be aggressive ... But I also think that the worrisome conditions are not here to be highly defensive. So our behavior is a normal stance." 

"We have a very strong economy, incredibly strong markets and worry about inflation.....  All those three things are just going on. But there are some changes going on in the larger sense."

"I think the most important thing is today: are you more aggressive than usual? Or more defensive than usual?

"And my answer at the present time is neither. We're in the normal stance, a normal balance of aggressiveness and defensiveness."

ON CHINESE DEVELOPERS' CASH CRUNCH

Regarding a debt crisis at Chinese property developers, including Evergrande Group's default on a bond payment this month, Marks said it was no surprise and was predictable.

"China has grown for a long time, based on the very strong availability of capital. ... This is a transition that they have to go through from easy money to normal economic decision making."

"At some point in time, you have to make a change from easy money to having decisions take place based on their economic merit. And that's what's going on right now."

ON INVESTMENT ATTITUDE

"There are two important things: number one if people are going to do their own investing, they should be humble. ... They should not overestimate what they know. They should not do daring things, big on a guess. They should accept that they don't know what the future holds and, and invest."

"The other thing is ... you should invest and keep your investments running. Don't interfere by getting out of the market and in the market and out of a jump from one to one. Stay in. Let it progress."

Write to Young-yeon Kang and Inkyoo Shin at yykang@hankyung.com

Yeonhee Kim edited this article.
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