Howard Marks joins us now on set here at the Qatar Economic Forum. He's the co-chair of Oaktree Capital Management. I'm very keen to talk with you about AI, something about which you've written a lot in recent memos. Before we get through, though, I'm very curious how you've processed what we've heard from the Fed chair, yes, in this most recent set of remarks that he gave after the Fed's decision, in the limited number of speeches he's done as Fed chair. Are you satisfied with the level of communication you're getting? How novel is the way that he's communicating with the markets?
Well, I actually think that less communication is better. I'm not looking for the Fed chair to tell me what to do or even tell me what he's going to do. But I think that to the extent that the central banker tells people less about what he's going to do, they have to make their portfolios and their businesses antifragile, which is better for society. When everybody in society thinks they know exactly what the Fed's going to do and prepares for that, then the society is dependent on that outcome. And if something else happens, then bad things can happen. So I think it adds to safety in the environment overall.
So you think Bush was on to something with a bit of this tail wagging the dog at the Fed, let the markets decide without relying too much on this forward projection?
I've learned a lot about the dot plots in the last month of my life, things I never knew I needed to know this stuff much about. But my personal preference is for a less activist central bank that normally lets the economy do its thing unless it's in danger of going off the rails too hot or too cold. If it's not too hot or too cold, leave it alone. So I'm in alignment on that. We talk about something called natural interest rates. Those are the rates that result from negotiations between borrowers and lenders. I think that's a great idea. This is called the free market. Let the market do its thing.
Listen. I'm a tough negotiator. Anything that can get that mortgage rate down, you and I will go at it. Howard Marks, what is this environment like for a value investor like yourself? It occurs to me that we have been obsessing so much over the Fed that maybe to have it take maybe not more of a back seat, be less front and center. That opens the door to relying once again much more on the fundamentals of the market than we have in the past.
Well, look. I am what is called a value investor, not with a capital V, but a small v. And that means our approach is to figure out the intrinsic value of an asset and see if we can buy it at a fair price relative to that value. That's all it means, in my opinion. And the challenge today is that, in my opinion, since roughly October 2022, I believe that the markets have been generally ruled by optimists. And the S&P has more than doubled in that period. It's been a very strong period. And I think that you have to recognize that when the optimists rule, prices tend to be high relative to intrinsic value, which means that it's a time for a little bit of caution. It's not the worst thing I've ever seen, but I do think it's important to note that the optimists have been in control.
Why do you think that is? Because as someone who comes more from the diplomatic side, watching we talk about this all the time, watching these markets respond positively to any trace of, oh, we've got a deal coming out of either Washington or Europe or the Middle East. I mean, those of us who covered this know it's not going to happen, but there's this indefatigable optimism that the markets at the moment just can't shake. Why is that?
Well, that's a great question. But I think there are certain underlying truths which are positive, which are in the ascendancy. Our economy is doing pretty well in the aggregates. It is, in my opinion, the best performing developed world economy. So, you know, the old TINA trade, there is no alternative. And there is the excitement over AI. So the optimism is just coming from the core. And the other thing is that we haven't really had a really bad time since March of 2009 when the stock market bottomed during the global financial crisis. And so people get used to good times and they extrapolate good times, and that contributes to the optimism. So there is no rampant pessimism today. And when people are personally keeping rampant pessimism on the... But the point is that when the optimists are in charge, they kinda slough off the bad news. And they get excited when there's word of a settlement. They don't get depressed when it falls through. That's true. So you have to look at that, and you have to say, well, there's a positive bias in the market today. And when there's a positive bias, you should acknowledge it. And what do you do about it? Maybe you build in a little defense, or maybe you take care in what you do.
Before we get into AI from a market's perspective, what stood out to me, and I think it was two memos back that you wrote, was your engagement with the potential societal ramifications of AI. And you expressed very clearly acute concern about what AI, if it comes to the fruition that we've been promised, would mean for people across this country, maybe not in cities, but in Middle America, what it means if all of these jobs were to disappear. You've been listening as we have over the course of the last week or so about the larger existential fears brought about by the promise and perils of AI. And I'm curious how you're processing those, how that builds upon what you warned about, you know, six months ago. Your fears that you had then, or have they gotten worse? Have they compounded as a result of the conversations that we've been having?
Well, I think that a sentient human being has to think about these things, has to acknowledge there's nothing we can do about it. And when I reach that point in my own process, I kinda let it go because, you know, my wife defines worrying as bleeding before you're shot. And in this case, there's nothing we can do about it. Nothing certainly nothing I can do about it personally. So, you roll with it. That's all. You acknowledge it. Let people think about it, but it should not be a preoccupation in my...
Are you satisfied people are thinking about it enough or in the right way?
