In one of his famous “memos” released on March 23, Howard Marks (Trades, Portfolio), co-chairman of multibillion-dollar asset management firm Oaktree Capital, discusses economic and geopolitical issues stemming from Russia’s invasion of Ukraine.
The paper, titled “The Pendulum in International Affairs,” began with Marks highlighting his continued fascination with the concept of the pendulum and how it can be applied to the markets and investing. The guru noted the topic for this memo was inspired by a discussion at Brookfield Asset Management’s (BAM, Financial) recent board meeting in regard to Russia’s invasion of Ukraine.
He then went on to explain that conversation led to two very important topics:
“At first glance, these two items – Europe’s energy dependence and supply-chain disruption – may seem to have little in common other than the fact that they both involve international considerations. But I think juxtaposing them is informative.”
Marks then went on to explain the nature of Russia’s energy production and the rise in the popularity of offshoring production to other countries. He wrote:
“So, what’s the connection? U.S. companies’ foreign sourcing, in particular with regard to semiconductors, differs from Europe’s energy emergency in many ways. But both are marked by inadequate supply of an essential good demanded by countries or companies that permitted themselves to become reliant on others. And considering how critical electronics are to U.S. national security – what today in terms of surveillance, communications, analysis and transportation isn’t reliant on electronics? – this vulnerability could, at some point, come back to bite the U.S. in the same way that dependence on Russian energy resources has the European Union.”
He then provided an overview of key geopolitical events that led to globalization before concluding that the “absence of perfect, permanent solutions is characteristic of pendulums – it’s why they swing.”
Read Marks’ full memo here.
