Hard Time Thinking Debt And Deficit Dont Matter: Marks

Apr.09 — Oaktree Capital Management Co-Founder and Co-Chairman Howard Marks says that debt and deficit should still be a concern because of the unprecedented nature of the crisis. He thinks that assuming debt should not be a concern right now is similar to a credit card with no limit. He joins David Westin on “Bloomberg Wall Street Week.”

An investment world where so much seems to be going so right what do you do if you’re looking for some distress some distress somewhere that’s the question we put to a claim distress investor and author howard marks of oak tree capital management one answer is that we’re uh active providing solutions to companies that want to recapitalize their balance sheet

Uh change their debt structure in some way or just add uh additional liquidity not distress situations but there are cases where there’s an appetite for credit and uh and the market doesn’t make it available we are active uh around the globe and there is more to do in asia and in europe than there is in the united states um and uh you know there are i think

We distinguish ourselves as investors uh by what we do when our strategy is not in great favor uh every strategy goes in and out of favor and uh this is the time to uh try to be resourceful and yet maintain our standards it’s very challenging uh howard it strikes me that one of the things that’s different from anything i think i’ve ever seen maybe anybody’s ever

Seen is the degree to which the government both on fiscal and on monetary policy is intervening in the marketplace is is that sort of a dampener on your business in the sense that for example when it comes to distressed debt you’ve got a lot of zombie companies i read i think it’s like 19 of the publicly traded companies in the united states right now are zombie

Companies do not generate enough cash to pay off their debt uh does that really make it more difficult for somebody like oaktree no that well that’s no that’s the that’s in short that’s the kind of situation that prevents opportunities to us uh if companies have no problems no exigencies uh then then the distress investor doesn’t have any problem and any active

Anything to do so we we take companies which are in extremists are producing bad news where the future doesn’t look so great and if we can buy those securities at the right price uh uh which means a price that overestimates the problems that’s how you make money as an investor uh so we don’t shy away from difficulties but isn’t there a price support under those

Companies if i can put it that way because essentially money’s free they can borrow more money even though they’re losing money they’re not generating enough cash again to pay service their debt doesn’t that actually make it more difficult to get the right price for you yes it does yes it does uh uh i mean the right price for us is is is to be able to buy things

For less than they’re worth that’s our goal uh we need the cooperation from somebody who’s willing to sell things for less than net worth uh and usually you get that when when the asset holders uh feel urgency to sell and when there is no support and when uh you know when yesterday’s decline is viewed as merely a foreshadowing of a further decline that’s when

You get to buy things at reasonable prices and today those things are generally not the case what about currency uh where are you on the us dollar how much does that factor into your decisions we don’t take an opinion on currency uh one of the six tenets of oaktree’s investment philosophy is that our decisions are not guided by macro forecasts so you don’t

Worry about long-term weakness of the dollar well i worry about it uh uh for other reasons not him saying well will i invest in this thing which is in pounds or rupees or renminbi or pesos or something like that and not tactically like that but you know i mean it’s a concern uh what what the uh the way the us is behaving vis-a-feed the dollar uh but on the

Other hand not clear what one does about it there’s a lot of discussion as you know debate even about the possibility of inflation as we’re about to add we’re in the process of adding 1.9 trillion dollars on the rescue package and now we’re talking about another 2 trillion dollars potentially from from infrastructure plan how concerned are you about inflation

And therefore increased rates um i i am concerned i’m not an economist i don’t trust in economic forecasts uh but i do think that you know look last year we added six or seven trillion dollars to the debt uh this year we’re on pace to probably do uh five or four or something like that and and the next year uh now the the the relief package will add substantially

The the infrastructure package is less of a worry because that those trillions are spread out over uh at least a decade uh so they’re only you know they’re only 200 billion a week that’s all by the way last year it was here the word trillion became in common use i don’t think we’ve used it much before that but but you know when a country uh adds that much to

Its debt and prints that much money and has to borrow that much money to cover the debt and refinance the debt covered the interest on the debt and the deficit i think it it you know historically one the knee-jerk reaction would be to say well that cheapens the dollar because there will be too many in circulation and we’ll have to try too hard to get people to

Finance our deficits uh now the fed uh claims not to worry about that uh and uh and i i hope they’re right we’ll see that claim that they claim that this the slow economy is more of a worry than a too fast economy which would bring on inflation let’s hope they’re right uh but you know when you as you said earlier in the in in the segment uh we’ve never seen

Stimulus like we have at this time and um you know i always say that if you’ve never seen something happen before you can’t say how it’s going to end and one of the things you’re known for certainly i read all your your notes about are really figuring out what you do know and what you can’t know and not trying to guess at the things you can’t know we haven’t been

In this territory before a lot of people seem to be assuming maybe the debt and deficit doesn’t matter anymore because the interest rates are so low we’ve heard janet yellen just this week say you know what these are long-term trends they keep it down and so there is really no danger of inflation should we be worried about that analysis do you think that the debt

And deficit still matter i i find it let me take the opposite side i find it hard to believe they don’t i mean it’s like saying that we have a credit card the united states has a credit card with an infinite balance capability and you never have to pay it off it sounds too good to be true and if somebody offered me that credit card i would look for the catch that’s all i’m saying

Transcribed from video
Hard Time Thinking Debt And Deficit Don't Matter: Marks By Bloomberg Markets and Finance