Larry Fink, CEO and Chairman of BlackRock, spoke with Bloomberg TV’s Erik Schatzker and Stephanie Ruhle today at the World Economic Forum’s annual meeting in Davos, Switzerland. Fink discussed the European Central Bank’s asset-purchase plan and the outlook for the euro-dollar exchange rate, Federal Reserve policy and the U.S. economy. He also spoke about the Swiss National Bank’s decision to abandon its currency cap.
Reacting to the ECB’s quantitative easing announcement, Fink said: I think we’ve seen over the last few years you have to trust in Mario…the market should not doubt Mario. He’s been able to pull this through…This monetary policy is going to keep the euro weak. And I think a weakened euro will allow European companies to improve. So I do think the European economies will be marginally better this year than last year.”
Fink also added “I would expect the Swiss economy to go into a recession because it’s going to have to take time to adapt to this currency level.”
Larry Fink says ECB Move Gives Europe Time to ‘Fix Itself’
ERIK SCHATZKER: He’s Larry Fink. He’s the Chairman and CEO of BlackRock, the world’s largest asset manager. And it seems like the logical place to begin, Larry.
Larry Fink: I’m not sure I feel like the king though.
SCHATZKER: No, why not?
Larry Fink: I’m cold.
RUHLE: All right.
Larry Fink: Go on.
SCHATZKER: Quantitative easing —
Larry Fink: Yes.
SCHATZKER: — by the European Central Bank, what do you make of today’s announcement?
Larry Fink: I think it was very much expected.
Larry Fink: I think after we had the court here, and court case in Brussels ten days ago it set the ECB in motion that they were going to be allowed to do this. Before that it was a legal issue. So they were allowed to do this. I think we’ve seen over the last few years you have to trust in Mario. And I think Mario Draghi got what he — what he was trying to propose.
SCHATZKER: And you trust Mario.
Larry Fink: I think the market should never — as we have seen that the market should not doubt Mario. He’s got — he’s been able to pull this through. There was obviously much public debate whether this is going to be helpful. I think what we should all understand what this is going to is going to keep the euro weak. This monetary policy is going to keep the euro weak. And I think a weakened euro will allow European companies to improve. So I do think the European economies will be marginally better this year than last year.
SCHATZKER: Because of this, because of the euro.
Larry Fink: Well I think is one thing. And in addition you also had just recently we’ve completed the stress tests. The banking system is now over the deleveraging process. We have to understand the U.S. banks stopped deleveraging years ago because our stress tests were actually real, legitimate in 19 — in 2009. Europe went through their third stress test, and this was actually legitimate.
RUHLE: And they finally had it.
Larry Fink: So they got it right now. And so you have a banking system that is now actually re-leveraging marginally. You have a weakening euro. You have an aggressive stimulative policy by the ECB. And so this is all going to lead to a more positive Europe, but we’re still not addressing some of the major structural issues. So I would call this — this is going to give Europe more time to hopefully fix itself. I did not have time to hear the Q&A. I would hope Mario Draghi and all the governors of the — of the ECB start talking about we need fiscal reform to really create a more vibrant Europe.
SCHATZKER: Before we get to fiscal reform, —
Larry Fink: Yes.
SCHATZKER: — are we going to see euro parity with the dollar?
Larry Fink: I’ve heard — I’ve heard view of that. I don’t think so.
SCHATZKER: Why not?
Larry Fink: Because I — I’m a little more worried about the U.S. in the next quarter or so.
RUHLE: What are you worried about?
Larry Fink: What am I worried about? I’m worried about a lot of things, but….
RUHLE: Well in the U.S. everyone is just so bulled up.
Larry Fink: Yes, I know that. So I’m this contrarian. So let’s talk about the marginal change. The marginal change in the United States is we’ve benefitted for the last four years by having a very weak currency because our central bank was the most aggressive in easing. Okay we are now talking about taking the foot off the pedal. Obviously we have. We’re not doing bond purchases anymore. And there is conversation about a resumption of more normalization of our interest rate. But our companies are now being marginally harmed by the stronger dollar, so that’s all marginal versus European companies.
Secondarily, the lower oil price in the long run is very powerful for the American consumer. In the short run it’s negative for these companies. You’re going to see a reduction in CapEx.
Larry Fink: You’re going to see some layoffs. We already saw Schlumberger announce a layoff. So my worry is we are going to see — we’re not going to see the three percent economy or three and half percent economy in the first quarter. We may see that once this energy number really goes into the economy. So incrementally you’re going to have a stronger Europe. You’re going to have a marginally weaker U.S. from the trend line.
So I’m not — I’m still suggesting we’re going to have a strong economy, but the trend line is going to be — is going to be slowing down a little bit because of the strength of the dollar, because of the short-term impact of the lower oil prices. And so and the question is will it slow down the Federal Reserve’s behavior as Chairwoman Yellen has confidently said, this is all data dependent. So if I’m right that we’re going to see an economy not growing at three percent, but maybe 2.8, and we see a little more unemployment claims because of what’s going on in the energy sector, we most certainly we’re going to see less capital expenditures as at $40, $50 a barrel you’re going to see some of the fracking and the new rigs slowing down. And we’re already starting to see rig count slowing down.
So what I’m trying to suggest, getting back to the original question, are we going to see parity, no, I actually believe much of the euro movement is behind us. Keep in mind we came from 1.40.
Larry Fink: We’re at 1.14 and change.
SCHATZKER: 1.14 and yes.
Larry Fink: Yes, can we see 1.10? Could see a downward trend to 1.05, even parity? Yes, but I don’t believe it’s sustainable.
SCHATZKER: What — what about a Fed hike in 2015?
Larry Fink: Well it’s data dependent. My view will even if the data is incrementally weaker I think there will be an announcement of a 25 basis point