Tuesday, December 16, 2014

Oaktree's Howard Marks On Lessons From the Oil Crash, Russian Crisis

From our December 5th post "Jim Grant is (still) bullish on Russia, gold and private equity":
He's gone from serious analyst to...I don't know what. Gold's going lower and Russia is Russia, where people with an actual understanding of the place travel in armored Mercedes limos and have a hidey-hole in London....
From ValueWalk:
Howard Marks, co-chairman of Oaktree (NYSE:OAK) Capital Management, told Bloomberg Television’s Stephanie Ruhle and Matt Miller today that loose rule of law is a major concern for investors who are considering buying assets in Russia. Marks said: “In order to make investments, you have to believe that you will benefit from the rule of law…The underlying question about Russia is whether you will. The question is, if you put your money in the bank will you get it back in the end?”

Marks also said that he is “working on a memo…about the lessons of oil. And one of the lessons that we’re learning again now is how fast things can change in the investment world…now all of a sudden a few months into this oil slide that has evaporated and in some corners we’re seeing panic. Weak deals that could get done because the markets were complacent and generous now are being exposed as having been overleveraged, et cetera. So of course when that happens we go from being extremely reticent to being aggressive.”
TRANSCRIPT
MATT MILLER, BLOOMBERG: I want to talk more about what’s going on overseas, the currency there, the interest rate aspect of it, which I find fascinating, the investment play. Let’s bring in Howard Marks right now. He’s our co-host for the hour. He’s the co-chairman of Oaktree Capital Management, which has $93 billion under management. He’s using the plunge in crude prices to buy up energy company debt, which would be the most interesting thing we could talk to him about today except for the fact that the central bank in Russia did this. Howard, what does it say to you that you can make 17 percent on your money right now?

Are you sending it all to Moscow?

HOWARD MARKS, CO-CHAIRMAN, OAKTREE CAPITAL: I think that in order to make investments you have to believe that you will benefit from the rule of law. And the underlying question about Russia is whether you will. You (inaudible) used the expression a minute ago, he’ll steal it.
The question is if you put your money in the bank to make 17 percent, which sounds like a lot of money, will you get it back at the end? We like to make investments where the range of outcomes is from here to here. In Russia the range of outcomes is probably from here to here.

STEPHANIE RUHLE, BLOOMBERG: Is that because you simply can’t trust the rule of law?
HOWARD MARKS: That’s one of the most important reasons. That’s right. And does — will Russia according — operate according to international norms?

MILLER: So you have to assume that Vladimir Putin knows this. Even if he’s unpredictable he’s an intelligent, educated, thinking man. Why would he —

HOWARD MARKS: And thus he would never invade another country and (inaudible).
MILLER: Well exactly.

RUHLE: Ding, ding, ding, ding.

MILLER: Well unless he thinks that he has the right to do it and that it’s somehow by birthright his country. He might also think that he has the right to take $20 billion from Yukos and Mikhail Khodorkovsky and throw him in jail for a decade. He might think that he can do these kind of things without repercussion. So is this going to change his mind?...
...MUCH MORE