Howard Marks on Why Investors Aren’t Worried

In a recent interview with The Wall Street Journal, Oaktree Capital Management co-founder Howard Marks shared insights on the financial markets and the economy.

Here are some excerpts:

  • According to Marks, it’s difficult to say if investors are overly optimistic. “I don’t think the stock market is delirious. Valuations aren’t terribly high.”
  • Investors should be concerned, says Marks, about the “duration of the economic recovery and the possibility of inflation. It’s worrisome that the government is applying stimulus in the 11th year of economic recovery, running a massive deficit and adding so much to the national debt, yet no one seems to be worried.”
  • The current recovery, while the longest on record, is also the slowest since World War II, Marks points out. “That suggests not so many excesses have built up.”
  • Value stocks will “of course” again outperform growth, Marks argues. “This is an area for contrarian thinking,” he says, adding, “It’s a general rule in markets and in life that excesses correct.”
  • When asked whether he is concerned about investor enthusiasm for “profitless technology companies,” Marks responded, “What you really want to know is how much optimism is in the price. If you can buy things where the level of optimism is unjustifiably low, that’s where you make a lot of money.”
  • Regarding bonds, Marks says,” We’re in a low-return world. All any investor can do is find the best relative opportunities,” adding, “In times like today, you may say bonds are the least worst. It’s troubling.”
  • Marks contends that deficits and debt levels matter. “It would have to be proved to me that they don’t,” he says, asserting, “I’ve always been told that you can’t print an infinite amount of money without something going wrong.”
  • On inflation, he notes, “I think it’s very mysterious that with low unemployment and heavy money printing there’s no inflation. I don’t claim to understand it. Everything you’re taught says that current circumstance would dictate inflation.”