Bloomberg Audio Studios, podcasts, radio news our investors looking past escalation given Trump's rat rake on a quick end to the wars. Let's discuss this and more with veteran investor Howard Mark's co chair of oak Tree Capital Management, which has more than two hundred billion dollars in assets under management. How it could have you with us. It's such a chaotic world. It does seem like traders are underprising the risk from Joe politics because even today all eyes 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.
Do you talk about how it is about intrinsic value? Everything else is belowny, But how do you get intrinsic value in a market that's overpriced? I mean valuations as kywriting especially on ESMP.
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 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 US 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 fifty five years in this business has been a mistake. Either you get out and it goes up, or you'll get out and it goes down and you forget to get back in and it
goes up without you. So 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 by your 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 pubs getting into everything that institutional invesis getting into and usually traditionally, historically that's the time to get out.
Well, but again I was with you until you set 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 insists it's true. You could have said, if you had a great foresight, you could have said, in twenty nineteen, I think there's going to be a pandemic, I'm going to get out. In twenty twenty one, you could have said, I think that Russia's going to invade Ukraine.
I'm going to get out. In twenty two, you could have said, I think how mass 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 we 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 three hundred 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 want to sell two or three percent 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 coals, you know, predictions, estimates. But Goldman came oot to say that it sees a further percent ten percent upside in the S and P from now through the end of twenty twenty five. Is Goldan right?
Ten ten? Well, it's pretty good, isn't it. I mean, on the other hand, Goldman, I think it's fair to say put out a report three or four weeks ago which they said that the pe ratio on the S and P five hundred is high. So as opposed to ten percent average return over the last century, they're projecting three percent for the next decade, So that's rather cautionary. It's not get out, it's not sell, but it's you know,
moderate your expectations. On the other hand, a ten percent game between now and the end of twenty five would be quite nice. So I think what this shows HESLNDA 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 gets it 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, grew it up.
You talk about how it's hard to do it on a short term basis. Okay, let's take a long term basis. Four years the Trump administration, looking at who he has suggested intens of his cabinet pigs Lutnik for instance, for Commas, and probably walls 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 firmed. 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 investment, our economy is in good shape. So it 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 mask for instance, You know has been put in charge of the Department of Efficiency. We saw Trump at Mosque's events Spaceship SpaceX just today. Do you read into the potential of perhaps how Tesla might play, you know, might gain from that. Do you see the potential of EVS gaining from that? How? How do you read into that? Well?
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 ever seen before, 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 roll in government produces an improved outlook for Tesla is very attenuated. I wouldn't go there.
Else in the world. China has been front and center with seeing stimulus in an attempt for China to revive the economy. Do you think China's doing enough? I mean, I know you see value in some Chinese stecks.
China is attempting something very difficult. They had what I call the Chinese miracle. They had ten percent 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 slow down that 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 a good growth, but not an excessive rely on stimulus, and stimulus sometimes leads to unwise behavior. It's not hard to get it's not easy to get it right. I'm hoping they will. I know they're dedicated to test they understand the importance of five percent at GDP growth And let me just say,
five percent sounds like a slowdown visus versus ten. But it's a well above average growth rate compared to the rest of the world.
But you talk about how it's challenging for China, is it's having something that's so difficult. Why is in China a value trap? Why is it still you know, full of value?
Well, I think because first of all, it has great potential to come into its own And you know, I mentioned before that the US situation is doing well but high priced. The Chinese situation has fundamental questions. But it's bargain price which is better? You know, you can't. It's all investing. It's a matter of relative choices with the risk that it's nascent.
Recovery might be jeopardized by Trump's policies.
And for the terrorists 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? Oh?
You know, I'm not close enough to the operating level to be able to talk back.
Everycing 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 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's 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 will they 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 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 asset. It's 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 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 cast offs and the bargains.
So you've been adding to your positions in China.
Well, we have. 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 you know we're continuing to uh to invest in China carefully, and you know, when the when the fundamental situation is uncertain, you have to take care. But the available the availability of assets at be and down prices is a great starting point.
All right, how would we have to live it? There have been a pleasure having you with us.
Thank you.
Howard Marks, co chair of oak Tree Capital Management,