"The big picture and the long term … the world in which my children and grandchildren will live." This is what worries Howard Marks, founder of the $50 billion Oaktree investment management firm.
Yes, Marks has a view on the troubled financial markets as well. He prefers the excellent investment opportunities in the fallen angels of the credit markets, senior corporate bonds and bank loans wallowing in investment purgatory but yielding 11% to 13% that look a lot more promising than the stock market, even though the Dow is down from 14,000 to 8,700.
Today, long-term social and economic trends taking shape in the U.S. obsess Marks more than short-term investing strategies. After 40 years, as money manager at Citicorp, Trust Company of the West and Oaktree, he is contemplating whether America can stay No. 1, a challenge for the new Obama administration.
It is also the topic of a very upsetting paper to be delivered by economist Allen Sinai at the Aspen Institute in Italy. Sinai, formerly chief economist at Lehman Brothers decades ago, concludes that the "stability of the U.S. economy, its financial markets and currency no longer can be taken for granted" due to a decade of "booms, busts, bubbles and periodic asset price deflation."
Boldly, Sinai has gone so far as to predict that the effects of the financial crisis will "most certainly mean a much lesser role for U.S. finance in global finance than ever before." Those are fighting words that won't be looked on kindly by the Obama Treasury or the Wall Street banks.
Neither Sinai nor Marks see clear simple answers ahead for President-elect Barack Obama. Housing, health care, infrastructure, the rising inequality in wealth, re-regulating Wall Street, the U.S. as debtor nation and the shift in wealth away from the U.S.--these are obstacles more numerous than FDR faced in 1933. Then, as now, the global economy was in recession, with export growth diminishing in Europe and Asia as well as here at home.
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Marks is concerned about broader questions, like whether the brightest and most talented people will want to come or be able to come to the U.S. He asks himself this in a recent monthly letter cherished by the powers-that-be in the investment community, with their philosophic frame of mind.
"Can an economy be successful if it consists of nothing but service providers, government workers and retailers?" he asks by way of giving a clear answer. Add in the constant increase of debt by consumers and the government, and it makes Marks wonder "whether constant deficits and a national debt that always grows faster than GDP can be right in the long run." The Obama team will have to confront this quandary and deal with it.
Then there's the question of affording retirement, the problem of Social Security's future that hasn't been resolved. Marks, who is no politician, is honest in seeing "no easy or pleasant answers." Nor does he think Obama or anyone can provide "the best possible medical care to every citizen." Maybe there can be moderate care for everyone, he suggests.
Obama also knows what Marks knows: that the U.S. is guilty of "profligate energy consumption." Count on the U.S. getting a new energy policy, but it will take time to implement.
So Obama faces the challenge of keeping America supreme as a global superpower amid the stress of a weakening economy, volatile financial markets and continued de-leveraging.
In the past, we have risen to the task.
It is healthy that leading investment gurus like Marks, who is also chairman of the University of Pennsylvania's investment committee, are dealing with it head-on and inviting their peers to join the communication. In 1933, there was too much ideological and personal hostility between most of the financial community and the New Deal. Obama, Wall Street and Big Business are far more flexible today.
(Robert Lenzner, Forbes.com)