Stocks aren't a bubble, but Fed's big role means investors should play 'defense,' Marks says

Published Tue, Jun 23 20205:34 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

(This story is for CNBC Pro subscribers only). Billionaire investor Howard Marks told CNBC on Tuesday that the role of the Federal Reserve in the recovery of financial markets may make current prices unsustainable. Marks, the co-founder of Oaktree Capital Management, said on " Closing Bell " that he was not as pessimistic as some other high-profile investors but did expect markets to lose steam once the central bank pulled back. "I understand the rally, but the question is if they levitate the markets, can they keep doing it forever? If they get the market to a level where it wouldn't be but for their buying, does that mean that the markets are dependent on Fed buying forever, and what happens if they stop?" Marks asked. The Fed pledged to buy government debt as needed to "sustain smooth market functioning" and has said it will buy bonds of individual companies, adding to the exchange-traded funds it has already purchased. Theoretically, the central bank could continue to be an active participant in markets forever, Marks said, but he views that outcome as unlikely. "Will the Fed spend trillions of dollars every year forever to support the markets? Is that its role? It's not its job, and you think there'd be some point in time where they'd want to get out of that business and let the markets trade on their own," he said. Marks said that the high prices for stocks and credit were not a bubble, going against what other profile investors like Jeremy Grantham have said in recent weeks. He pointed to the strong revenue and profits of some of the large tech stocks that make up a significant portion of the market as a difference between the current rally and the tech bubble of the late 1990s. Marks said that Oaktree, which largely invests in debt, is fully invested in "most places" and is not trying to raise cash. "Where markets are today, combined with the fundamental outlook, would put a premium on defense rather than aggressiveness," he said. Watch the full interview above.

Howard Marks, co-chairman, Oaktree Capital.

Courtesy David A. Grogan | CNBC

(This story is for CNBC Pro subscribers only).

Billionaire investor Howard Marks told CNBC on Tuesday that the role of the Federal Reserve in the recovery of financial markets may make current prices unsustainable.

Marks, the co-founder of Oaktree Capital Management, said on "Closing Bell" that he was not as pessimistic as some other high-profile investors but did expect markets to lose steam once the central bank pulled back.