BlackRock CEO Laurence Fink spoke with FOX Business Network’s (FBN) Maria Bartiromo during Opening Bell with Maria Bartiromo about investing in the marketplace. Fink said, “I think we're going to be living with a lot more volatility. I think that's going to be one of the key issues for the next few years.” Fink went on to say, “We're going to look back and say, boy, the last five years were the easiest time to invest.” When asked whether BlackRock has been considered a Systemically Important Financial Institution (SIFI) Fink said, “We've had no clarity” and that “I'm not sure what it means if I'm a SIFI because I'm already regulated by many of these entities already.” Fink also commented on regulation saying, “I do believe we have safer, sounder, financial markets today and we need to make sure that we're vigilant.” Fink spoke about the President of the European Central Bank Mario Draghi saying, “Mario has done an incredible good job. He's been outstanding in terms of his just consistency.” When asked about emerging markets Fink said, “I believed going forward as an investor of an emerging world, you're going to have to be much more granular. You're going to have to start spending more time focusing on singularities of each country and investing in a mix of different countries.”
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Excerpts from the interview are below.
“Well, the banks are much better capitalized. They're much safer than they've ever been in tens and tens of years. They have a more stable revenue business now, too, as a result of it. Banks should be trading at higher PEs, because the factor, they've been regulated out of some of the riskier businesses because the fact now that they have to be more of an agent again instead of a principal. The regulation is providing society with more safety, but in the long run, in my opinion, it's going to make banks better and it's going to make banks to be able to trade at higher PEs, because they have sounder, stronger, safer businesses. So, there's a plus and minus; you know, we go back to 2003 and 2004 when we had Sarbanes-Oxley and everyone said that's going to be the death knell of IPOs and everyone said it was bad. You know, we adapt. We learn. And as a result of regulation from Sarbanes-Oxley, why are the Chinese IPOs coming here? Because the world investors feel investing in the U.S. exchange stocks are a safer place. So I think, we should continue to make sure we have strong, well-balanced regulatory supervision. In some cases, I may disagree with the degree of regulation with some industry. They're still reviewing the asset management business, so I don't know where that will be and where that becomes. We should see by June some regulation out of the SEC related to money market funds which we've been very supportive of. So, I do believe we have safer, sounder, financial markets today and we need to make sure that we're vigilant. I mean, the great thing about capitalism, capitalism tries to find opportunity and sometimes that opportunity is-it moves faster than regulation. So hopefully as we adapt, we build; we find new opportunities in the markets - and I don't mean this in any negative way, I mean it in the most positive, capitalistic way, let's hope that our regulatory regimes keep pace so we don't have another financial crisis.”
On whether BlackRock will be deemed systemically important to SIFI:
“We've had no clarity. We are working very closely with the FSOC. We are working -- we are having many conversations with the regulators in Europe. So this is not just a U.S. issue, this is a European issue, too. And so we, among many other people, are working, are asking for advice, asking for opinions and, obviously, they just take our opinions and they may do -- they may throw them out or they may adapt some of our opinions. And so it is a one-way avenue; they ask us questions, we provide them with answers and we get very little back. And that's how it should be.”
On whether BlackRock will change dramatically if considered a SIFI:
“It may change other firms more than BlackRock because we're already regulated by the Federal Reserve, we're already regulated by the OCC, we're regulated by the SEC, the FCA. We're - we are heavily regulated because when -- and we also have capital set aside for operational risk. These are all components from when we did the mergers, when we purchased BGI from Barclays. These are all part of the agreements we had with various regulators. P&C Bank still owns 20 percent of BlackRock so we did, as a result of that, we still fall under the Federal Reserve. And so I'm not sure what it means if I'm a SIFI because I'm already regulated by many of these entities already. We have a great working dialogue with our regulators, very good working - and it's constructive. And I think one of the reasons why BlackRock has been quicker to adapt in the marketplace is because we have to be - we have been adapting to the demands of our regulators.”
“Europe also has been consistently seeing that inflation rates are way below their targeted 2 percent. And many people think there's deflation. I'm not sure there's deflation in Europe; there's certainly disinflation and we're seeing a declining inflation rate. And so Europe does need a little more stimulus, because in my mind, Europe was much later, it did these policies later than the U.S. And this is why our economy is starting to be mending and going upward. Our stress test, if you remember, were now five years ago, when Secretary Geithner announced them and now the Europeans are doing their third and final stress test now. So this is one of the reasons why Europe has been much slower in terms of returning to normality.”
On President of the European Central Bank Mario Draghi:
“Mario has done an incredible good job. He's been outstanding in terms of his just consistency. Europe's improving because the peripheral is improving. Spain has improved dramatically from where it is, even Greece has improved under Samaras quite considerably. Northern Europe is improving just marginally. And, at the same time, the European banks are still deleveraging. So, we have a serious job issue in Europe.”
On emerging markets:
“I think people are reevaluating their style in which they invest in emerging markets. We saw hundreds of billions of dollars over 10 years flow into emerging markets. In most ways people invested is in through index funds, the MSCI index funds… when China was growing at 12 percent and 10 percent, it was like the high tide; everybody rose. All the countries did quite well. Now, with China growing at 7 percent and there's some big fear that they could slow down to 6 percent - you're now beginning to see that there's a real granularity to how some countries are performing. Some countries are performing much better than other countries. Some countries actually have really fine governments and some countries really have bad governments… I'll talk about the good ones, I mean, Mexico is doing fine and it has done fine. The leadership there, the reforms, the finance minister, the prime minister, the head of the central bank, we're talking about leadership that has really now trying to take the Mexican economy to a whole different level through these reforms…Brazil was actually doing fantastic for seven, eight years; it loaded up a huge amount of debt. It was very reliant on the exporting to China… And I believed going forward as an investor of an emerging world, you're going to have to be much more granular. You're going to have to start spending more time focusing on singularities of each country and investing in a mix of different countries.”
On whether we’re going to be living with more volatility:
“I think we're going to be living with a lot more volatility. I think that's going to be one of the key issues for the next few years. And central banks, for the last five years, have been very coordinated worldwide. We're going to look back and say, boy, the last five years were the easiest time to invest. You know, a few years back when I said, be 100 percent in equities, the reason why, I thought we had global central banks behind us. Going forward now, you may have the Federal Reserve changing course, which they are obviously doing it. You may have the ECB continuing to ease. So you're not going to have coordinated central bank behavior…but the more important thing, we're going to be more reliant on government policy.”
On the Federal Reserve:
“I think the Fed should be aggressive in their tapering. I think the Fed should be rigorous in monitoring inflation and I think the Fed should begin, as Chairwoman Yellen has stated, that there may be a time when we're going to be raising rates and we believe that's the right course.”
“Inflation, it's hard to have a lot of inflation in this country with factory utilization to be as low as it is, one of the reasons - and that's another, getting back to our first comment, that's why we're not seeing as much capital expenditures by companies, because factory utilization is still low in many areas. Second of all, their - "The Wall Street Journal" did a survey that 92 percent of CEOs are - have stated that they have job openings. There are actually job shortages being created more and more in the United States. Once again, this isn't the high-end jobs; this isn't not the jobs, you know, great welders or people are looking for, these are really good jobs, but there are a lot of job openings here. So I actually believe in some components of the U.S. economy now, we're going to start beginning to see inflation; we're going to see wage inflation. You know, even the Case Shiller Report related to housing, we are beginning to see housing prices continue to go up; in some areas they're higher than they were in '08.”
On the letter he sent to CEOs:
“Well, this is the second time I sent the letter as we go into proxy season. A few years ago, I wrote the letter not with the same emphasis, but an emphasis that is talk to us, we're one of your largest shareholders, we are interested in long-term results, not short-term results. And the letter this time really is a response to argue the economy is improving, argue that there's way too much discussion about short-term trades, way too much discussions about activism, which in some cases has its role. So we're not against activists if they're, indeed, if they're doing something to move a company that has been unwilling to do things, what we think are the right things. Our interests, are for our investors. First of all, this is not BlackRock's money. It's all on behalf of our millions and millions of investors, the small savers, the insurance companies, the pension plans, so it's for everybody. And because of most of our investors have given us their money in index funds, and ETFs, we're going to own these companies for the long run. And if these companies remain to be in an index, we don't sell the stock. Even if we don't like the stock, we have to own it. And so we have to be there alongside with management. We have to be working cooperatively with management, and our views today that the narrative is so loud now on the activist side, and in too many cases CEOs have probably focused more on the short-term and they've raised dividends. In some cases these were appropriate moves and increased stock repurchases and when you have low interest rates, obviously it makes sense to repurchase stock if you could have a better return. So, we're not against those movements; we are against the movement though in lieu of, at times, for companies who could be reinvesting in capital expenditures and plants and equipment.”
“We do have a growing problem in the job market. We have actually a shortage of high end labors and we have right now all of this uncertainty in great unemployment levels for the lower end of the job spectrum. And I'm not suggesting to hire people by any means if there's not a demand. I'm not suggesting by any means build a factory if there's not demand.”
On companies that are sitting on cash:
“Well, I think technology has really transformed the workforce and the workplace. You could manufacture many more goods with the smaller and smaller factories, with the robotics that are being done. So, in many reasons is we just have so many more efficiencies in the factories today. That doesn't require as many factories and doesn't require as many workers within the factories. So, that's a trend that we have to face. In some of the cases, the companies have been reluctant to invest and expand. So, there's not one reason for all companies to hoard cash. Let's also raise the issue, some of the reasons why companies have been reluctant to do things is short-termism out of Washington. It's not just a CEO problem. I mean, Washington has been so guilty of not providing us a clear, long-term view of how this country's going to be - earn its way out of the issues…so I could be writing the same letter to the men and women in Congress and say we need to focus on long-term.”
On whether he got a responses for the letter he sent out
“We just sent them out. The last letter I sent out, I got many phone calls from many CEOs thanking me for the letter. I hope I'll get the same response, it's too early to say. You know, very few people speak out like this. I just was getting frustrated that not enough people are focusing on long-term. And I mean, I think every time I’ve been on your show, I talk about long-term, long-term, long-term… And this is just now a note to leaders of companies about long-term. Not just investors, about investing for the long-term, I spend a lot of time talking about retirement and longevity. That's long-term, too. So we have to be investing for the long-term. And so, I think there is just, there's a need in this country for a voice about long-termism and there’s just not enough focus on the long-term.”
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