In a recent interview with Bloomberg, Oaktree Financial co-chairman Howard Marks offers insights on adapting to the current market landscape as an investor in distressed companies.
Here is a summary of Marks’ comments:
- Marks acknowledged that the current rebound makes it more difficult to find opportunities, but notes, “We distinguish ourselves as investors by what we do when our strategy is not in great favor. Every strategy goes in and out of favor and this is the time to try to be resourceful and yet maintain our standards. It’s very challenging.”
- The current rebound, however, is uneven in that it does not not apply to all sectors—i.e., travel and leisure. According to Marks, the search for return includes extending credit to businesses that clearly are not rebounding. He adds that Oaktree is open to any sector except for technology.
- Marks agrees that the extensive government stimulus support has provided price support to “zombie” companies (those that don’t generate enough earnings to cover debt) and therefore have made it more difficult to find opportunities.
- Marks notes that the tremendous increase in debt and money supply in the U.S. is something the Fed claims not to be concerned about. “We’ve never seen this level of stimulus before. If you’ve never seen something happen before, you can’t say how it’s going to end,” he said. While the Fed doesn’t seem to be concerned, Marks noted, “I hope they’re right. We’ll see.”
- “I find it hard to believe that the debt and deficit doesn’t matter,” says Marks, who adds, “It’s like saying the U.S. has a credit card with an infinite balance capability and you never have to pay it off. If someone offered me that credit card, I’d be looking for the catch. That’s all I’m saying.”