Howard Marks comments...

To your comments around maybe still waiting a little bit to get very aggressive, particularly in the Opps funds, could you give us a little bit of an idea of any kind of broad indicators you look at to suggest that either credit has corrected too far in certain places or has further to go? And in that vein, how do you balance your very, very long history of investing in credit/wealth with the very, very different liquidity environment that it feels like we're in now relative to pretty much any other time given kind of the pullback in the banks?

Well, thanks for that question, Patrick. I think that there is no one quantitative thing that we follow to tell us how to behave. As I indicated in what I said before, it's really judgmental. We just want to have a feeling as to whether -- how bad we think things are going to get and the extent to which the coming problems are incorporated in prices. Now most of the work we do is bottom-up rather than top-down. So we make our decisions based on individual cases, how -- what do we think it's worth and how cheap do we think it is now. And I think we'll always continue to do that. Now we do like to bring our experience to bear and say that this kind of feels like that period or that period and think about how they worked out. Now one thing to take note off is that the average spread on high-yield bonds passed the threshold of 800 basis points. And we've been having a lot of discussion about that around here. Historically, on average, when you bought high-yield bonds when they pass that 800 bps threshold, you did extremely well over the coming 1 and 3 years -- yes -- and especially well relative to treasuries. Now having said that, however, most of the time when high yield bonds exceeded 800 they went on to exceed 900 and 1,000 and 1,100. So -- and that's really what we struggle with. And I have to tell you, Patrick, that this is never an easy decision. And I have the most vivid memory back in the fourth quarter of '08 after the bankruptcy of Lehman Brothers. Of course, I was meeting with Bruce several times a day. He had $11 billion in Fund VIIb that he was trying to decide whether to invest and how fast. And I got to tell you, one day he would say, "I think we're going too slow." And the next day, he'd say, "I think we're going too fast." And the next day, he'd say, "I'm going too slow." So I figured, well, we must be doing it about right. As I indicated in one of my recent memos, we never feel that great about these decisions when we make them. They're hard decisions. And you have to make it without any real concrete milestone. And the only thing I can take comfort with is looking back all those uncomfortable decisions have pretty much worked out.

Okay. That's all very helpful. And how do you balance all of that historical knowledge with what feels like a very, very new type of liquidity environment than we've ever really seen?

Well, it's always something's different. But that's why Twain said history does not repeat but it rhymes. The great thing, especially for the distressed debt business, but for most of our business as you look across Oaktree, is that our returns don't come from Mr. Market. And particularly in distressed, typically we buy the debt; we go through a restructuring process; the restructuring process kind of crystalizes the value and unlocks it. And after holding for a few years, we tend to start selling when it approaches what we consider full value and then scale out. But I have to say that we enjoy an enormous luxury that in our -- in the strategies where we own the most liquid assets, we have the most lock-up. And I shudder at the thought of trying to invest in these asset classes without locked-up money. And you just couldn't possibly do the right thing. So we are -- if we invest Opps Xb, and if we start sometime in '17 or in the early '18, and I don't need to say I know when it's going to be, that means that, that fund has until 2025, '26, '27 for their investments to work out. And I fully believe that sometime in that time span, as Ben Graham said, the market will convert from a voting machine to a weighing machine; and sometime in that period, we'll get full value if we bought the right things.

So first, just a question for Howard. With high-yield spreads today certainly, well over 70, 100 basis points, at levels typically associated with recession, but then we see U.S. housing seems strong, improving jobs are strong, corporate balance sheet in good shape. Yes, energy is under stress. But I guess, just how do you think -- but do you think that credit markets and commodities could shake enough that causes corporates broadly to cut back on hiring and CapEx and overall kill [indiscernible] and possibly bring the U.S. into a recession? How are you thinking about this year?

Well, first of all, Michael, we fired our economist. So -- actually that's not true. We never had one. But we really don't take a position on questions like that. My general feeling is, and I think I expressed this in -- on the couch, I just don't think that we're in for a recession this year. And my feeling is that we've been limping along for several years now with an anemic recovery and even seems to be losing energy from that low level. But having said that, the consumption side is pretty good. I think that the gas savings are allowing people to improve their financial pictures. And the services businesses are resilient. Of course, we're not highly dependent on China for purchases of our exports. So -- and again, the last thing I want to do is present myself as an economist. But I just don't think that there's going to be a recession starting this year. Eventually, we're going to have a recession. We always do. But I just don't think it's imminent, and I don't think it's going to be a strong one, in large part because we didn't have a strong boom. We didn't have an overexpansion of facilities or of payrolls. And so I just -- I think it's -- people are so down on everything now, because -- largely because of the market performance, but I just don't share it.