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Howard Marks Questions the Long Game of U.S. Debt Explosion

But deficits and tax cuts are working at the moment, Oaktree Capital’s Howard Marks told Delivering Alpha attendees.

  • By Julie Segal

President Trump’s election win was one of the biggest surprises ever, and so is the economy’s vibrancy under his administration, said Oaktree Capital co-chairman Howard Marks at Institutional Investor’s and CNBC’s Delivering Alpha conference in New York Wednesday. Marks was responding to a question about how he would begin one of his famous memos on “President Trump and the Markets.”


When it comes to the ending of the fictional memo, Marks said a lot of the administration’s moves — including the Tax Cuts and Jobs Act and the dramatic expansion of the national debt — have so far showed positive results. “But the long-term impact is unclear,” continued Marks. Politicians, however, are loathe to take away the “punch bowl,” which is a losing strategy when it comes to votes. 


[II Deep Dive: Howard Marks Favors Being Defensive in Aging Bull Market]


Marks — who has been cautious about the environment for years — believes the bull market is in the eighth inning, but he stressed that no one knows how many innings there will ultimately be. There are many potential bad outcomes, including a trade and tariff war, but the co-chair and founder of Oaktree said he’s more concerned about some investors not having lived through a downturn. “The idea that things are good and will stay that way for ever has always gotten people in trouble,” said Marks, who has been investing in high-yield bond markets for 40 years. 


With the bull market going on 10 years old, Marks urged investors to evaluate whether they want to have the same level of risk now as they had three years ago. Even with Marks’s caution, Oaktree continues to do deals every day and seeks to be fully invested. The firm has been living by the motto “move forward, but with caution.” Oaktree continues to aim for returns almost on par with the highest performers, but with less risk, he said. 


There are areas that Oaktree still favors, including emerging markets equities, private lending, real estate lending and infrastructure. “Everything with a CUSIP is overpriced,” Marks quipped, referring to the unique nine-character codes that identify securities. “Public securities are basically priced higher than private securities. And we specialize in private,” he said. 

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