Howard Marks has a message for investors worried about how America’s fiscal situation could impact markets: don’t dump your stocks.
The billionaire founder of Oaktree Capital investment firm shared his thesis in his latest memo published on Tuesday, laying out where he stands on big economic matters, including the growing fiscal burden that’s been worrying investors this year.
“While we’re waiting for Washington to solve the problem, what should we do in our portfolios?” he mused. “That’s what a friend of mine — not an investment professional, but a nationally known entrepreneur — asked me last month. ‘Should I sell my stocks?'”
Marks said that the answer to that question is “no,” and that dumping stocks isn’t the answer to the problems facing the US.
That also doesn’t mean Marks is highly bullish on market conditions, but he maintains that when it comes to stocks, investors should keep in mind that fiscal problems should not be regarded as an indication of the market’s strength.
“The problem we face isn’t a problem with the U.S. stock market or with U.S. companies,” he wrote. “It’s a problem with U.S. fiscal management, and ultimately a potential problem with the U.S. dollar.”
If you dump stocks, Marks says, the question becomes, “now where to I put my money.” Simply pulling out of the market doesn’t shield investors from the risk of more fiscal pain, particularly that which stems from the dollar losing purchasing power.
“If you sell your U.S. stocks, where will you put your money? A bank? A money market fund? Bonds? If they’re denominated in dollars, you haven’t escaped the risk under discussion here.”
The billionaire said that one way to hedge the risk of fiscal deterioration might be to invest in assets denominated in other currencies or non-financial assets, citing gold and real estate as examples.
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Earlier this year, Marks questioned gold as a store of value, raising concerns about how it should be priced. As he added in the September memo, though, these types of assets come with their own risk, which may not be preferable.
“Many companies elsewhere in the developed world have poorer growth prospects than leading U.S. companies and less scale (and thus fewer economies of scale), and many operate in jurisdictions that are more highly regulated and less business-friendly,” he added.
Get the latest Gold price here.