I stumbled across an interesting interview with Blackrock Management’s Laurence Fink yesterday afternoon on CNBC. Blackrock is one of the largest mutual fund companies in the world. Mr. Fink, who should have appeared on my book cover with a clown nose on his face, is their CEO. He was out trying to coax investors into putting their idle cash to work in the stock market.
It was classic broker-speak.
The interview began with a discussion about the foreign debt crisis and only moments later Mr. Fink was pitching high-yield mutual funds – Blackrock mutual funds, to be sure. Fink went on to say that the “greatest risk” investors faced was “not making decisions….not investing…[and that] there is a huge cost to owing cash.” (So not true, see proof.)
Again, Larry’s a broker trying to raise money by creating demand using the Dow’s recent move as an indication that things are okay and a ripe time to invest. By the end of the interview he suggests that the market’s true problem was “low volume. In other words, get off the sidelines and give us more of your money.
And it’s coming soon to broker near you. Here’s the link if you care to see what to expect: http://video.cnbc.com/gallery/?video=3000076058.
However, if you follow what’s going on in the Market and read the news it’s impossible to make the argument that stock valuations warrant additional investment. With the Dow at the top of its historical trading range it can’t be considered low. Remember, making money is about buying low and selling high – which is hard to do when you buy up here.
Besides, news for the global market continues to depress. Sears (owners of Craftsman, Kenmore, Kmart, and Lands End) recently posted a stunning $2.4 billion loss; Cablevision’s profit fell 47%, Procter & Gamble released plans to cut $10 billion in costs after announcing to layoff 1,600 employees, and Caesars Entertainment recorded another $200+ million loss. Add to this a continued decline in home prices, a 4% drop in durable goods, and escalating energy prices and what you have is one big ugly mess. And with the Dow trading at 13,000 like there are no such problems – it’s an awful time to buy stocks.
This, of course, is not to mention that even Fed chairman Ben Bernanke now sees inflation on the way (conveyed in his congressional testimony on Wednesday.) A rise in inflation (the cost of money) will cause interest rates (the cost of borrowed money) to also rise, all other things being equal.
Meanwhile the European Central Bank dished out another $700+ billion to troubled banks across the pond – the second such effort in the past few months. It’s a real mess over there, and with higher interest rates on the way, it’s sure to get messier.
And oh by the way, what exactly do you think is in those high yield mutual funds Larry Fink referred to in this interview? You guessed it, foreign sovereign debt – because higher risk of repayment translates into higher interest rates.
We know this from the subprime mortgage debacle. In fact, Europe is like one big subprime mortgage portfolio. That’s why European government bonds are currently paying around 7% while the U.S. is paying around 2%. Inflation will cause both to move higher, which will create more distress and failure. It’s an awful time to buy bonds.
But Wall Street doesn’t care about that. They’re looking to raise capital to bailout the world because that’s what they do to make money. They get a piece of the action they raise and every time investors buy high and sell low the Wall Street establishment gets richer by stealing a piece of their wealth.
That’s why Larry Fink says jump in and Danny Calandro says stay put. All I have is one book to sell. (Click the picture to read chapter 1 for free.)
