Mar 30, 2020 · 25m · 20vc
20VC: Howard Marks on How COVID-19 Impacts Our Economy, Liquidity and National Debt, Why The Theory of Falling Knives and Market Bottoms is Wrong & Why The Best Investors Are Fundamentally Unemotional
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of The 20 Minute VC, Oaktree Capital co-founder Howard Marks analyzes the unique economic shock of the COVID-19 pandemic and evaluates government fiscal responses. He explains why successful crisis investing requires unemotional contrarian execution and rigorous risk management rather than market timing or economic forecasting.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 36.9% of the talking time here. How this is scored →
Harry as informed peer 2.8 Guest teaching 4.7 Guest disagreement 2.2 Harry pushing back 1.7
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 19:10 Calling market-bottom adages cover for inaction
Howard forcefully rejects conventional Wall Street adages like 'don't catch a falling knife', labeling them intellectual covers for inaction during crises.
Hardest push from Harry ▶ 16:48 Challenging Howard with hedge fund manager counter-perspectiveHarry resists Howard's stance on buying during market drops by citing a London hedge fund manager's explicit warning against catching falling knives.
Biggest teaching moment ▶ 12:14 Correcting host's premise on valuation adjustmentHoward directly corrects Harry's assertion that valuations hadn't adjusted yet, highlighting that US public equities were already down 35%.
Harry holds his own ▶ 16:48 Framing the falling knife dilemmaHarry demonstrates industry knowledge by countering Howard's buying strategy with an expert warning regarding market timing and falling knives.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Howard Marks' Career and Founding Oaktree | 1 | 2 | 1 | 0 | Harry welcomes Howard and asks for a brief recap of his 60-year career before asking broad open-ended questions about the nature of the economic crisis. Howard outlines his career at Citibank, TCW, and Oaktree, then details how the COVID economic freeze differs from previous cycles. | |
| Limitations of Monetary and Fiscal Policy | 3 | 5 | 1 | 1 | Harry asks a well-structured question regarding whether central bank and government tools have been exhausted. Howard educates on basis points, explaining why cutting rates from 1.5% has limited impact compared to historical 500 basis point cuts. | |
| National Debt, Deficits, and Inflation Risks | 4 | 6 | 3 | 3 | Harry channels a question from Bill Gurley regarding national debt and asks why asset valuations haven't reacted to the crisis. Howard directly refutes Harry's premise about valuation lag by pointing out that public equity markets in the US were already down 35%. | |
| Assessing Depression Risk and Policy Solutions | 2 | 4 | 1 | 1 | Harry asks whether a Great Depression scenario is plausible and what policy interventions Howard favors. Howard explains the unintended secondary consequences of policy moves like rent freezes on property owners. | |
| Market Bottoms and Catching Falling Knives | 4 | 7 | 5 | 4 | Harry challenges Howard's aggressive stance by bringing up a London hedge fund manager's advice not to catch falling knives. Howard delivers a strong reframe, arguing that waiting for the dust to settle guarantees missing bottom-of-the-market bargains and calling the adage cover for inaction. | |
| Investor Psychology and Emotion in Crises | 3 | 4 | 2 | 1 | Harry asks about managing emotional psychology during market panics and transitions to quickfire questions. Howard explains that non-emotional contrarian behavior is required to achieve above-average investment results. |
Statements from this episode (18)
Warren Buffett reads Howard Marks's memos before anything else
“It was Warren Buffett himself that said once, when I see memos from Howard Marks in my mail, they're the first thing I open and read.”
Marks: High-Yield Bonds Have Been Central to 40 Years of Finance
“In 78, I was asked to start a high-yield bond fund, and high-yield bonds have been the, shall we say, epicenter, although it's an advised word today, for almost everything that's happened, interestingly, in finance in the last 40 years.”
Marks: COVID-19 downturn is not driven by a credit bubble
“This time around, we are not coming off a bubble. The banks are much less leveraged. And there's no analog as deficient in substance as the subprime mortgage.”
Marks: US interest rates at 1.5% limited Fed rate cut capacity entering COVID
“Well, the problem is that in this instance, the interest rates at the beginning of the problem were one and a half percent. So clearly if it's one and a half, you can't cut by five.”
Marks: The US ran a $1T deficit during prosperity due to 2017 tax bill
“And thanks to the Trump tax bill that was signed in December of 17, we were already running a trillion dollar deficit in times of prosperity.”
Marks: The Fed and US government will exhaust all non-traditional economic stimulus tools
“There are other things that the Fed and the government can do, and they'll do them all to try to bring the economy back.”
Howard Marks rejects Modern Monetary Theory's view that national debt doesn't matter
“And there's a theory called modern monetary theory that it doesn't matter, which I find that hard to accept.”
Marks: United States national debt will never be repaid
“So the point is we're going to be going through the next years saddled with an enormous national debt that we'll never repay.”
Marks: Global economy saw nearly 40 years of low or declining inflation
“The world has been a deflationary place or a low inflation place, should I say, from 82 till now, which is almost 40 years of declining or absent inflation rates.”
Marks: Oaktree Navigates Crises by Investing in Senior Debt of Viable Companies
“I think for Oaktree, Harry, all we try to do is figure out what companies will stay in business, some idea of what they're worth, and then invest in them on a senior level. And if investing in what we think are viable companies in senior debt, if that doesn't …”
Marks: US Public Market Valuations Dropped 35% Before Private Markets Adjusted
“In the US, we have had that effect. As before today, I don't know where the market closed today, but it was up substantially, like, eight or so percent when I last looked. Before today, I think the market was down about 35%, so I wouldn't agree with your premi…”
Marks: Swift Government Actions Significantly Reduced Risk of a Global Depression
“My partner, Bruce Garsh, and I, talking, I would say, middle of last week, were afraid of a meaningful probability of a depression, with millions losing their jobs and businesses shuttered for long periods of time. Now, I think, with the government having done…”
Howard Marks: Market bargains vanish once uncertainty is resolved
“It is my opinion that when the knife is falling, it's terrifying. Buyers get great value. And when the knife stops falling and the dust settles and the uncertainty is resolved, the bargains are gone.”
Howard Marks: Oaktree's closed-end funds allow aggressive crisis investing
“So the great thing about Oak Tree's position is that a good bit of our assets are in closed end funds where the clients can't withdraw. They've committed money to us. We have it for up to 10 years, and we can do what we think is smart without having to worry a…”
Howard Marks: Waiting for market bottoms is cover for inaction
“Oak Tree rejects the concept of waiting for the bottom. It's impossible, intellectually, to know when you're at the bottom. And I think that terms like, don't catch a falling knife, and wait for the bottom, are cover for inaction during crisis.”
Howard Marks: Above-Average Returns Require Resisting Crowd Psychology
“What that means, Harry, is that if you operate emotionally or psychologically, like the average person, you will have average results, which for the most part means buying high and selling low. In order to be an above average investor among all the various req…”
Howard Marks: Successful Investing Requires Operating Without Foreknowledge
“The important misconception is always the same, which is that it's possible sitting here to know what the future holds. We have to invest despite the absence of foreknowledge, not in reliance of foreknowledge.”
Howard Marks: Europe Will Outperform US in Navigating COVID Crisis
“The U.S. Has a better underlying rate of growth and more economic vitality. On the other hand, I think that the U.S. Lacks the national leadership, which might be required to get us through this. My guess is that the, well, in this little instance here, I'm go…”