p.s. notice where Mr Fink is traveling... since day 1 in this blog, I've been talking about investing in companies whose customers are becoming more rich by the day through petrol dollars or trade surplus - instead of those getting poorer by the day such as subprime USA.
- Larry Fink, the mastermind of mega-investment firm BlackRock (BLK), readily concedes that he built his career by being bearish. But right now, while he stops short of calling a market bottom, he is sounding a whole lot more bullish. In recent days, Fink has been traveling around the world—China, Saudi Arabia, Dubai, and elsewhere.
- But Fink, whose firm controls over $1 trillion in assets, has big-money investors to confer with as he plots his strategy for what he acknowledges are scary days on Wall Street. What he is telling major clients is that once stability returns to the markets, all the cash that's on hold will set off a massive rally. So act now.
- Back in the fall I said markets cannot hit bottom until there is a capitulation or people begin selling. We're at a point where people are capitulating and selling. But these are frightening times. Every day you read about the impairment of one hedge fund or leveraged lender; about stresses with banks and security firms over their balance sheets. So the question is: How low does the market go until it finds a bottom? It's hard for me to tell you the bottom is here, but I'm telling all our clients worldwide that for long-term investing, the credit markets represent great values.
- The problems the Fed and our government are facing is that lowering interest rates has actually aggravated the credit markets they're trying to fix. We are experiencing a liquidity problem. But what the Fed did today was very different than any other action it's taken. It is proposing to offer Treasuries in return for other types of collateral to security firms. This is very important and is a strong statement by the government that it wants to fix this liquidity problem. They're saying that in exchange for Treasuries, they'll take in mortgages. So they are trying to reduce the balance-sheet stresses at banks and security firms over their mortgage holdings. In fact, some of the major catastrophes or bankruptcies or failures we've seen in the last few weeks involve entities that held prime mortgages.
- Everyone is still fixated on subprime. Subprime was yesterday's problem. I don't want to say it's not still a problem. But the bigger problem today is in other asset categories—prime mortgages, leveraged loans, and other forms of leverage. I think we're going to see next week, with first-quarter earnings from Goldman Sachs (GS), Lehman Brothers (LEH), and Bear Stearns (BSC), that if they show any impairment—and I'm not saying they will or they won't—their impairment isn't going to be in subprime. It's going to be in bank loans. It's going to be in commercial real estate. It might even be in prime mortgages. (Bingo! I keep saying subprime was just the sympton, not the disease)
- I am very bullish on some components of our economy. I think we are in a recession, but I believe our exports will probably make this recession less severe than it otherwise would have been. But getting back to the world, we are seeing a slowdown in the Asian economies, a tremendous slowdown in Korea and in Japan. We're seeing a slowdown from maybe 12% GDP [growth] in China to 8%. In the Middle East, we are still seeing a huge boom in infrastructure. However, the one contagion that we are starting to see in China and certainly in the Gulf region is an untenably high inflation. My worry is that inflationary pressures from the Gulf and China, combined with low interest rates the Fed has put in place, could create higher inflation in the U.S.
- If the global economies do slow down, commodity prices should slow down, too. [The runup] in commodity prices is because so much of our markets are being driven by hedge funds, and most hedge fund managers are momentum traders. So they're buying long positions in commodities because the momentum is for higher prices. I don't believe the economic activity we're seeing in the world justifies these commodity prices.
I've always liked this guy. Maybe because he agrees with me on so many subjects. ;)
One important point that I tried to put into larger font is the runaway inflation the rest of the world is starting to see - part of it is the World of Shortages and part of it is hedge fund speculation in commodities and part of it is a world awash in liquidity (paper money) chasing finite hard assets. Basic economics - huge supply (trashed currency) chasing finite assets = prices skyrocket. So as we cheer what the Fed is doing to prop up one asset (equities) keep in mind the after effects worldwide and the real pain it will cause across the globe. People in America do not realize how for most people in the developing world, what a great % of income goes to food alone. So as food costs escalate we are really going to be causing harm to hundreds of millions if not billions across the world. I haven't written about the food shortages and pricing issues for a few weeks but this "bubble" we create this time to "bail out the system" is going to affect the lower and middle class across the globe (not to mention in the USA) through commodity inflation; the one commodity they all care about is food. [Feb 26: Rising Inflation Creates Unease in the Middle East] This is not even taking into account the corn ethanol boondoggle. This is why it is so purely toxic what "they" are doing - all to bail out the NYC banking community. This has been a theme of mine for a long time, but the real painful effects will be borne out the next 1-3 years globally. So in return for saving "innovative" "lightly regulated" US bankers from themselves, we exaggerate an already awful global food supply problem. But as inward looking Americans, all that matters is our stock market goes up - the rest of the world - well it's a dog eat dog world (or "people eat dog" world the way it's going) [Jan 30: Hungry Haitians Resort to Eating Dirt] Flooding the world with paper money (and we're only in inning 4-5 of our epic flood) does have many consequences; for those paying attention we are already seeing them - the mainstream press will catch up in a year or two.
Long Blackrock in fund; no personal position
