Are investors looking past escalation, given Trump's rhetoric on a quick end to the wars? Let's discuss this and more with veteran investor Howard Marks, co-chair of Oak Tree Capital Management, which has more than $200 billion in assets under management. Howard, good to have you with us. It's such a chaotic world. It does seem like traders are underpricing the risk from geopolitics because even today, all eyes are on NVIDIA.
Well, you know, the world is chaotic. The future is never clear. Some people spend their time trying to figure out the future and pricing it. I say it's unclear, and we abstract from that. So, you know, we just try to look at individual companies and figure out which ones will grow, which one will repay their loans, and deal on that basis. We call that bottom-up, not top-down.
You talk about how it is about intrinsic value. Everything else is baloney. But how do you get intrinsic value in a market that's overpriced? I mean, valuations are skyrocketing, especially on the S&P. Well, you say it's overpriced. I would say it's high priced. Overpriced is a judgment call. And you think about what you think something is worth. You compare how it's selling relative to that.
And then, in my opinion, that should determine whether or not you're aggressive or defensive. So, I think we would agree that U.S. stock valuations, for example, are on the high side relative to history. That would tell me to be a little
less aggressive than usual, a little more defensive, but not necessarily to get out. You know, getting out is really a big step. Most of the time in my 55 years in this business, it's been a mistake. Either you get out and it goes up or you get out and it goes down and you forget to get back in and it goes up without you.
You know, it's just a matter of calibrating, in my opinion, your behavior between aggressiveness and defensiveness when things are a little high as they are, a little more defensive than usual. But this notion of risk on, risk off, in or out, buy or sell, that's too black and white. It's not fitting for the world we live in.
The thing is, right now, we're seeing herd mentality. Moms and pups getting into everything that institutional investors are getting into. And usually, traditionally, historically, that's the time to get out. Well, but again, I was with you until you said out. Because, you know, just remember this. And everybody, you know, as I said, we don't, we're not market timers. We're not macro forecasters. And I told you that before the break, and I insist it's true.
You could have said, if you had a great foresight, you could have said in 2019, I think there's going to be a pandemic. I'm going to get out. In 2021, you could have said, I think that Russia is going to invade Ukraine. I'm going to get out. In 2022, you could have said, I think Hamas will attack Israel. I'm going to get out. You would have been right about the events, but it would have cost you a lot of money. And not only do we never know what's going to happen in the bigger world,
But we also don't know how the market's going to react. And so to be dogmatic and to say it's high, I'm getting out is a mistake. Warren Buffett, who always says it best, says don't bet against the United States, for example. And, you know, Warren Buffett has taken money off the table, more than 300 billion dollars worth. Why?
No, he says there's nothing to buy. Valuations are high. But what percentage, you know, people look and they say, well, Buffett sold some stocks. Does that mean we should get out? What percentage of his stocks did he sell? Probably rather small. So it's not a broad statement. You know, if it's a little high and I say be less aggressive.
If you wanted to sell 2% or 3% of your stocks, I understand. But Buffett's not selling all his stocks, and neither, I think, should anybody else. Howard, you talk about how you hate making calls, predictions, estimates. But Goldman came out to say that it sees a further 10% upside in the S&P from now through the end of 2025. Is Goldman right? Ten. Ten. Well, that's pretty good, isn't it?
On the other hand, Goldman, I think it's fair to say, put out a report three or four weeks ago in which they said that the PE ratio on the S&P 500 is high. So as opposed to 10% average return over the last century, they're projecting 3% for the next decade. So that's rather cautionary. It's not get out. It's not sell. But it's moderate your expectations. On the other hand,
a 10% gain between now and the end of 2025 would be quite nice. So I think what this shows, Heslinda, is that investing in the short run is very uncertain and nobody should think they really know what's coming and most people
should take an almost passive approach. The idea is it's good to invest. It's good to invest in the United States. It's good to invest over time. And it's bad to try to mastermind it in the short run with get in, get out. Now, if everybody gives up on getting in and getting out, you may lose a few viewers. But the point is,
Investing is a good thing. Do it early. Do it a lot so that you can build the nest egg. Don't screw it up. You talk about how it's hard to do it on a short term basis. OK, let's take a longer term basis. Four years. The Trump administration, looking at who he has suggested in terms of his cabinet picks, Lotnik, for instance, for Commerce and probably Walsh for Treasury. How are you looking at that? How might that impact market sentiment and how this plays out?
Again, these things are very hard. Number one, what's going to happen?
Nobody knows. His appointments are not firm. They have yet to be confirmed. His policies are not known. What is he going to do? Nobody really knows what he's going to do. Number two, what else will be going on in the world? He's not the only show. It's complicated. Number three, how will the market react to all these things? Number four, the president's influence on most things is usually quite limited. Number five, as I said before, our economy is in good shape.
So in general, things are going well in the United States and or better than most other places. And that's why things are high in the United States. So the situation is generally good, but you're paying a lot for it. We'd like to get a good situation at a bargain price. It's rarely the case. I don't think things are crazy high now, and I don't think it's time to get out.
How are you reading into the president's relationship with Elon Musk, for instance? He's been put in charge of the Department of Efficiency. We saw Trump at Musk's event, SpaceX, just today. Do you read into the potential of perhaps how Tesla might gain from that? Do you see the potential of EVs gaining from that? How do you read into that?
I'm not smart enough to know the answer to that question. I think that this is a very unusual situation, one we've rarely if ever seen before, a bromance, if you will, between a president and a founder of a company. There's no doubt about the fact that Musk is brilliant, idiosyncratic.
People have been talking about increasing efficiency in government and eliminating fraud and waste for decades. I don't think anything's ever been done about it. And the question is, I assume that what's going on means that Musk
will do more about it than has been done in the past, and then we'll get to see whether it works. But, you know, this is just one more thing, which is so unpredictable and indeterminate that I don't think it's worth most investors doing anything about it. So, no point piling into Tesla.
No, no. The reasoning through which Trump's relationship with Musk and Musk's role in government produces an improved outlook for Tesla is very attenuated. I wouldn't go there. Elsewhere in the world, China has been front and centre. We're seeing stimulus in an attempt for China to revive the economy. Do you think China is doing enough? I mean, I know you see value in some Chinese stocks.
China is attempting something very difficult. They had what I call the Chinese miracle. They had 10% GDP growth a year for a few decades when they were coming into the modern era. A lot of that, or some of it, was built on stimulus. You can't stimulate your way to growth forever.
They've tried to back off on the stimulus, but that has caused a growth slowdown. Now they don't want to have the full brunt of that slowdown. So they're trying to kind of calibrate – that's the word I use in many cases – they're trying to calibrate the right amount of stimulus to produce good growth, but not an excessive reliance on stimulus. And stimulus sometimes leads to unwise behavior.
It's not easy to get it right. I'm hoping they will. I know they're dedicated to the task. They understand the importance of 5% GDP growth. And let me just say, 5% sounds like a slowdown versus 10, but it's a well above average growth rate compared to the rest of the world. But you talked about how it's challenging for China. It's attempting something that's so difficult. Why isn't China a value trap? Why is it still?
you know, full of value? Well, I think because it, first of all, it has great potential for, to come into its own. And you know, I mentioned before that the U.S. situation is doing well, but high priced. The Chinese situation has fundamental questions.
But it's bargain priced, which is better. All investing, it's a matter of relative choices. But with the risk that its nascent recovery might be jeopardized by Trump's policies and further tariffs on the economy?
Well, if you can tell me what Trump's really going to do, as opposed to his rhetoric, and if you can tell me whether Trump's rhetoric is going to induce behavior on China's part that makes Trump back off from his rhetoric, then I may know the answer. But nobody can do that. Where does he value in China?
close enough to the operating level to be able to talk back. Have we seen the end of the crisis in the property sector, for instance? Is there a sense that – because it takes a recovery in the property sector to actually revive investor sentiment and confidence. Well, you know, any time you have an amount of building which is highly stimulated by the availability of capital,
Then you have to go through a period of adjustment in which the buildings that have been built are absorbed. And some have to be repurposed, some growth, you have to grow into that space. And that doesn't happen overnight, and it doesn't happen because the government turns a policy lever. It's going to take some time. The question is not whether they have to do it, the question is,
Will it bottom out? Will they stop adding excessively to the property stock? And will they put in place policies designed to create the absorption? My bias is that they will. And, you know, many people in the investment community describe China as uninvestable.
To me, that word is music to my ears. I've made my whole career buying assets that other people consider uninvestable. And when you do that, you have a chance of getting a bargain. So I think that clearly, China is on the pile of things that people feel ill about.
And it's on that pile that you find the bargains. That doesn't mean that you should buy everything on the pile, but that's where you look for the castoffs and the bargains. So you've been adding to your positions in China? Well, we have a good position in China and have had for a long time. Can you share some of that position in any way? No, I don't go into names. But we're continuing to
to invest in China carefully. And you know when the fundamental situation is uncertain you have to take care. But the availability of assets at beaten down prices is a great starting point.