Market Overview

Why The CEO Of The World's Largest Investment Management Firm Is Negative On U.S. Economy


Larry Fink, chairman and CEO of BlackRock, Inc. (NYSE: BLK), the world’s largest investment management firm, was recently interviewed by Bloomberg at the World Economic Forum's annual meeting in Davos, Switzerland. In the interview, Fink discussed the recent announcement by European Central Bank to go on a massive asset-purchase spree, the outlook for euro-dollar exchange rate and the U.S. economy.

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Do You Trust Mario Draghi’s Decision?

“I think the market should never – as we have seen that the market should not doubt Mario,” Fink said. “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.”

He continued, “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.”

More Time For Europe To Fix Itself

“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 would hope Mario Draghi and all the governors [...] start talking about [why] we need fiscal reform to really create a more vibrant Europe,” Fink added.

Euro Parity With The Dollar

Fink doesn’t think that we are going to see euro-dollar at parity because “I'm a little more worried about the U.S. in the next quarter or so.”

Related Link: European Central Bank Unveils €1 Trillion Quantitative Easing Program

Why Are You Negative On The U.S. Economy?

“So I'm this contrarian,” Fink said. “The marginal change in the United States is: we've benefited for the last four years by having a very weak currency because our central bank was the most aggressive in easing.”

“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.”

He continued, “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.”

Fink also believes that we are going to “going to see some layoffs.”

He said, “We already saw Schlumberger announce a layoff. So my worry is [...] we're not going to see the 3 percent economy or 3.5 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.”

Posted-In: Bloomberg CNBC European Central Bank Larry Fink Mario Draghi Schlumberger World Economic ForumMedia


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