BlackRock’s Fink: Get Off Sidelines

Published on

Laurence Fink, BlackRock chairman & CEO, says there could be serious repercussions for investors not getting into the stock market: “The biggest risks for investors are not making decisions,” he tells CNBC’s Maria Bartiromo.



when larry fink told a group of black rock employees in hongkong that investors need to get off the sidelines and put all their money into equities, some eyebrows were raised around theworld. the man who runs the largest world’s asset management firm says investors are missing big opportunities right now. is he right? joining me now to explain thosecomments and his view on the markets is larry fink, thechairman and ceo of black rock. larry, great to see you. hi, maria. hi. let me first kick it off with what happened this morning in terms of the news. one of your overall themes, and we talked earlier today about what was going on in the world today, and that’s government de-leveraging. what did you think about theecb’s ltro facility? what kind of impact might this have? i actually said 100% equities on your show in october, first of all. yes, you did. and thank you for giving us the first scoop on that. i did it here first. if you look at the prices in europe, the prices in europe this past fall was a liquidity crisis. you had banks who were being forced into liquidating their assets, primarily sovereign wealth — sovereign credits, and they were forced to start selling that. that was a snowball. as they were trying to getprepared for bassel 2, and ultimately bassel 3. it created a real panic. there was an absolute, you know, lacking of liquidity. so what president dragi did, they started with the first ltro, which is a three-year term repo, and did it again last night, this morning.and they’re stabilizing the liquidity in europe. and i think this is really essenti essential. we have seen italian and spanishyields decline over 300 basis points. a good indication of thestability we’re beginning to see in europe. we should not think that this is a fix. this is a stabilizer. this procedure creates anatmosphere in which now the politicians can find ways tostabilizing their deficits, and most importantly, they have nowtwo to three years to start fixing their economy towards i think what the ecb has given is europe time to fix their problem. this is not a fix, it’s a stabili stabilizer. i think some people would argue, look, part of this whole strategy is the ecb is having the banks borrow the money, and then the banks can buy the sovereign debt. but are we loading up these european banks with the sovereign debt down the road, and creating an even more risk? i don’t think they’re going way out beyond three years in maturity. so they’re buying sovereign credits that they will meet the financing terms of the vehicle, that the ecb is creating. they’re not out there buying ten-year debt. but we’ve seen a big decline in ten-year debt, because of the fear of rollover financing, it has been abated and now we’re seeing long investors come in and buy 5 and 7 and 10-year sovereign debt. so it’s not just the banks that are buying this debt, but theecb has created a mechanism in which the banks, a, don’t needto sell the assets that they had to because of the liquidity issue, and b, if the banks choose to make a positive arbitrage by borrowing from the ecb money out to three years, they’ll be matched funded between the assets and liabilities. this is a major issue as far as the back drop of the economies of the world, and the market. let me ask you about the federal reserve today. we had the beige book out. we’ve got rock-bottom interest rates. you’re looking at this as a sort of real trip-up, a negative for investors who are thinking this is safe, and they’re missing opportunities and higher yielding securities. i think the biggest risk for investors today is not whether the market’s going up or down in the next week, or next month, i think the greatest risk for investors are not making decisions. we are all going to live longer. we all have so much science now in helping us translate — diseases that were once deadly are now chronic diseases. so we’re going to live longer. in the united states, especially, we’re not even prepared financially to financethe lifestyle that we’re looking for, and now if we’re going to live longer, we’re going to have a bigger shortfall. at black rock, we’re concerned about this gap. and we believe with ourleadership role, it is our responsibility to speak up about this giant savings gap. and this giant gap to meet your retirement.we spend so much time focusing on our health care needs, and we want to live better lives to live longer, but we’re not thinking about the financial aspects of living longer. and are we going to have enough financial resources to afford the lifestyle that we’re used to. the longevity is a major issue. and i know that’s one of the most important as far as you framing where we are right now. so let’s answer that very simple straightforward question that you have put forth in terms of this branding campaign. what do i do with my money? how do you invest in this environment?we believe there are five opportunities in terms of investing. so i may be 100% interested in owning equities myself. but obviously many people can’t afford the volatility. many people have to be looking for other sources of income. so we have stated that we believe in — because we’re so constructive on corporations worldwide, owning dividend stocks is a great opportunity. owning high yield is a great opportunity to earn extra return, higher returns to meet those longevity needs. we also believe there’s a role for active management and passive management. so we’re not against either way. it’s really a determinant on how much risk you want to take. we feel there are many ways to actually earn the returns you need. we believe individuals and companies need to be focusing more on alternatives, whether it is real estate or different forms of hedge funds where you’re going to be able to provide those types of returns. so what we’re trying to suggest are, there are many investment opportunities to invest, but you have to have a time horizon that’s not a week, not a your needs at retirement, and how are you going to get to that pool of money to meet those needs. the one thing that i think we’re saying loudly is, there’s a cost of owning cash. and so everyone thinks cash isrisk-free. and definitionally cash is risk-free. however, the cost of inaction may be far greater. so if you’re a 38-year-old or a 42-year-old, and are not investing for your retirement, that cost is compounded. and you only have a short period of time to build that nest egg. so there is a huge cost of owning cash. right.what about that, what about sectors, what about parts of theworld? where do you want to be exposed to now? you’re traveling all over the world all the time speaking to deep-pocketed investors. where is the vibrancy. where are they placing their bets? and i use bets lightly, i’m talking long term.sectors and geoographies. you always follow where gdps go.look at the emerging world as a sector to be investing in of theyou don’t have to do that by investing specifically in theemerging world. own the ges and honeywell, jpmorgan, and the other stocks that are multinational that are earning returns worldwide. even at black rock, 40% of our business now is outside the united states. so you can be looking atmultinational companies. that pay dividends. that pay dividends. look at multinational companies that have — that have debt that’s long dated, that may be earning 4%, 5%, 6% returns. what do you think the implications are of day in, dayout, such low volume and low volatility? what is that a symptom of or result of? i think low volume is, a, a concern of the people are holding back. i also think low volume is also an issue of this fear of the future. and people are holding back. it’s not just a function of low volume, it’s a function of how much of a pool of money is sitting in cash. industrial s&p companies in the united states are sitting with $1 trillion in cash. this phenomenon is not just with investors, it’s with ceos. they’re holding back, too. so low volume is just — is an indicator of this fear, this inaction. bottom line, get off the sidelines, get your money working for you again. i think you have a greater risk if you don’t start acting now. larry, good to have you on the program. thank you, maria. nice to see you. larry fink, ceo at black rock.

Leave a Comment