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00:00You write in your latest memo that nobody knows how bad the viral outbreak will be or how deep its economic impact will be . And of course that's true. Nobody not even Dr. Fowler she knows how bad this is going to be. But investors need a framework is deciding what to do as simple as saying buy if you're a corona virus minimalist or sell off your corona virus maximalist. Well that would be a trading mentality that's guessing what's going to happen next week or next month. And you know I'm not I'm an investor. And what an investor would do is say how does the current price of a given asset compare with what I think is its long term value. And you know the point is that stocks are down about 12 percent from their high and . Is that enough of a decline or too much of a decline or just about right. You know I think that it's a big decline. I think that the economy and the markets will have bad showings for a while. And then I think we'll come back. So you say in the memo and it's more or less what you just described that one needs to evaluate the price change against . The degree to which the fundamentals have worsened . That's impossible right now is impossible. So why not evaluate the price change against the degree of uncertainty. Because that's where we were the last time you wrote a memo called Nobody Knows Right. We were on the brink of the economic collapse that followed the bankruptcy of Lehman Brothers. Now if you went liquid right after Lehman Brothers went bankrupt . And then you waited to buy. You did relatively well it was a whole lot easier to sell in September than it was to sell in November or December. Why not do the same thing . I'm not sure I follow that. I don't think it was easier to sell . Everybody wanted to sell. The competition was on the selling side. The easy part was buying. And well things got worse . Things went further down. OK yes. Well I don't think in terms of days and weeks so you have me at a disadvantage. But I mean directionally the question is you know are things cheap or rich. Now as you say it's impossible to say. But on the other hand you know I've been coming on your show for a couple of years saying that I only a couple and saying I thought things were steep. There was a lot of risk taking going on. Things were priced for perfection. He was exercising. They are short termism. We were being cautious and it was hard to buy things for less than their worth. It was hard to get a bargain. That was the recurring theme. Now we can't really be too doctrinaire about whether things are cheap or rich but we know they're a heck of a lot cheaper than they were two weeks ago . And we know that there is panic. And by the way when I say 12 percent that's the overall you we know that there are great exceptions. And one of the things is that in times of chaos investors failed to make fine distinctions. So things go down more than they should and less than they should. We we have an opportunity we think to find the things that have gone down more than they should. It's a better climate for getting bargains today than it was two months ago. Some people want to wait for the bottom. Well is it better to buy now if you see a bargain than to wait for the bottom. Well I could ask you what is the bottom. Eric and I have no idea. Well know that it's easy . The bottom is the day before it starts going up . But how do you know right. That's what the motto is only judge in retrospect. So I think that. And you know the book that you meant the plug mastering the market cycle has a lot about this idea of waiting for the bottom. You never know when you're at the bottom but you might have a feeling that something is cheap. And if it's cheap you should buy it. If it goes down more ISE that wasn't the buy bottom. If it goes down more buy some more and keep your nerve and and continue down as long as your assessment is right. Howard people want to know is Oaktree out there right now catching falling knives . Well we're certainly buying. Yes we're certainly buying. I mean if you if you're a distressed investor Iraq you you must turn more aggressive when you're given good chances . I'm not saying this is the bottom but I this is certainly a time to do some buying . Some things are trading at distressed levels. Yes. The market certainly isn't even close. Overall stock market short. Well or the credit market for that matter. Right. Do you believe do you have a sense as to whether this will become the distressed credit opportunity that Oaktree and others have been waiting for these painful years of relentlessly rising stock markets. Well I I would guess that it will. Now I don't what I can't tell you is the magnitude. Is it is that a replay of 0 8 can tell you or are of 2000 can't tell you . The real question is how long will it last. You know it's among the things that we don't know as you enumerated is whether it's going to last two months and the virus is going to disappear when the warm weather comes or 18 months which is when the outside date when Mr. Fowler she says we'll have a vaccine. That's a lot of spread. If it goes 18 months we're going to have a serious event here. Economically speaking this outbreak is what economists call an exhaustion is shock . Yes it is not. Or the economic impact isn't produced by . Faulty central bank policy for example pulling the punchbowl away . It's also not the product of financial over exuberance like or of company behavior. Correct. Right. Is that important. Is that an important distinction . Probably not. I mean if if you're a value investor and what you care about is the relationship price and value. You don't care why you got there and you know exaggerate as fact. Events can have a great impact . This one is I think particularly terrifying to most people. It's an unknown . Most people fear the unknown . Most people say oh you know let's see a pandemic. That's a scary word. You know and and I think that these things cause a lot of fear. So that said does it make sense to you. I would like to make reference to a chart if I may. Does it make sense to you that right now high yield spreads one way of measuring stress in the credit market at about 500 basis points . Yes that's actually quite a bit less quite a bit less than they were in late 2015 early 2016 and also lower than they were in late 2013. In neither of those past two periods where we looking at the potential the possibility of a serious recession and now we are. Well the periods that you're referring to certainly the 18. That was a moment that wasn't a long period of time. You could you could find a couple of days on your chart when the spread is where it is now . But again I'm not going to guess about the direction of spreads . I'm not going to buy because spreads are wide. I'm going to say does the incremental yield I'm getting on this bond adequately compensate for its probability of having a credit problem. That's all that matters to the insured. The the incremental spread is an insurance premium that that the investor gets for taking credit risk just like an insurance company. And that's the assessment I'm going to make . Historically this is the historically when the spread has been five hundred or more the high yield bond has done investor has done very well in the absolute and very well relative to treasuries now doing well relative to treasuries right now. It doesn't prove a lot . But you know we're starting to get to the point where we can have good outcomes .

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Oaktree's Marks Says the Market Sell-Off Is Creating Bargains

Howard Marks, Oaktree Capital co-chairman and co-founder, discusses his outlook for the U.S. economy and stocks amid the coronavirus outbreak and says he is starting to find bargains to buy. He speaks with Bloomberg's Erik Schatzker on "Bloomberg Markets." (Source: Bloomberg)

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