BlackRock's Fink warns of 'too much optimism' in markets

Jan 25, 2014 @ 12:46 pm

BlackRock Inc. Chief Executive Officer Laurence D. Fink warned there is “way too much optimism” in financial markets as he predicted repeats of the market turmoil that roiled investors this week.

“The experience of the marketplace this past week is going to be indicative of this entire year,” Mr. Fink, 61, told a panel at the World Economic Forum in Davos, Switzerland on Saturday. “We're going to be in a world of much greater volatility.”

Mr. Fink, who runs the world's largest asset manager, spoke after in emerging markets that was triggered by concern about China's economic growth and the Federal Reserve's tapering of its monetary stimulus later this year. The MSCI World Index slid the most this week in five months.

As Davos delegates fretted about the robustness of economies from Turkey to Argentina, central bankers from the euro area, the U.K. and Japan used the stage to signal that monetary stimulus will remain in place.

“Interest rates will stay at the present or lower level for an extended period of time,” European Central Bank President Mario Draghi said. Bank of England Governor Mark Carney added “there's no immediate need” to raise rates.

GLOBAL OUTLOOK

Mr. Fink's outlook challenged the relatively upbeat tone struck by others during the four-day gathering in the Swiss Alps, which began after the International Monetary Fund predicted the strongest world economic expansion since 2011. The meetings of the past seven years were clouded by jitters about financial crisis in the U.S. and Europe.

'We can be cautiously optimistic about the global outlook,'' Bank of Japan Governor Haruhiko Kuroda told the panel.

While Mr. Fink agreed “the overall trend is going to be fine,” he predicted “quite a bit of disruption” and said the onus was now on governments to work to improve economies.

“That troubles me, as there has been great consistency of dragging their feet by politicians,” he said. “The marketplace has been rather encouraged by good, consistent monetary policy across the world.”

Mr. Fink spoke a day after Goldman Sachs Group Inc. CEO Lloyd Blankfein told Bloomberg Television that the week's fall in markets wasn't surprising because asset values had risen sharply.

'VERY ABNORMAL'

“It would be very abnormal if we didn't have consolidating moves in the assets that have gone up so much,” he said.

Mr. Fink predicted the U.S. economy will grow more than 3 percent this year and said the world's economy had benefited from a soft dollar. By contrast, Europe needs a weaker currency and the euro at $1.36 is “unsustainable,” he said.

Appearing on the same panel, IMF Managing Director Christine Lagarde said central banks should continue to keep monetary policy loose until growth becomes well-anchored and then communicate their exit strategies clearly. She warned the risk of global deflation may be between 15% and 20%.

Mr. Draghi rebuffed speculation the European economy faces the threat of a prolonged decline in consumer prices. He noted that inflation excluding energy and food prices had been as low now as in the wake of past financial strains and that much of its decrease the result of downward pressure on prices in crisis-hit Greece, Ireland, Spain and Portugal that may reverse.

“Our accommodative monetary policy will remain so,” Mr. Draghi said. If the economy or markets deteriorate “we are ready and willing to use all the instruments our treaty allows.”

As for the U.K., which has recently displayed signs of economic strength, Mr. Carney said “exceptional stimulus remains very relevant.” He cited headwinds including spare capacity, sluggish European demand and tighter monetary conditions, including a strengthened pound. Even when the Bank of England does raise rates “any such increase would be gradual,” he said.

(Bloomberg News)

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