One on One with Robert Doll, Vice Chairman & Chief Investment Officer, Blackrock
Monday, January 07, 2008
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SUSIE GHARIB: Our guest tonight says the bull market will continue in 2008 and stocks will reach new record highs. That's one of his 10 predictions for the New Year. Joining us now to talk about the entire list, Robert Doll, vice chairman and chief investment officer of Blackrock. Happy New Year, Bob. Nice to see you.
ROBERT DOLL, VICE CHAIRMAN AND CHIEF INVESTMENT OFFICER, BLACKROCK: Same to you, Susie. Thank you.
GHARIB: And congratulations on accurately predicting 8.5 out of your 10 predictions in the year 2007. Congratulations.
DOLL: Thank you very much. Let's see if we can do it again.
GHARIB: Let's talk about your list. Even though you're bullish overall on the market, looking at your first two predictions for 2008 looks like you're predicting a pretty gloomy economy. You're saying that the U.S. narrowly escapes a recession and world economic growth also slows down. Give us your analysis there.
DOLL: There's no question that housing is in a recession here in the U.S. That's not going away. That is slowing the U.S. consumer and all of that is having a slowing effect on much of the rest of the world. Europe, by the way, is slowing as well. The strongest area remains Asia. So world growth will take a step back led by the U.S. to the down side that we think narrowly escapes a recession due to good export growth as well as strong corporate balance sheets outside of the financial sector, Susie.
GHARIB: I guess it's because of that weak economy that you come to the conclusion in prediction three that you're predicting more rate cuts by the Federal Reserve. To what extent will the Fed be aggressive on that front?
DOLL: Well, we think the Fed has been grudging so far. They keep pointing to inflation we think in a slow below-trend growth environment and with credit issues that inflation in the near term won't be a particular problem. Fed funds is currently 4.25. We think that number will come down to 3.5, at least, maybe lower as the year progresses depending on how weak things get. A lot of talk recently given the employment report of last week in the ISM manufacturing that maybe the Fed will do 50 this month. We'll see.
GHARIB: Now, despite those rate cuts, you say that the dollar will strengthen against the euro. Tell us why.
DOLL: Well, our view is that the dollar has gone a long way to the down side against the euro. The euro land area is also weakening Susie and with that we think will come some rate cuts in that central bank as well. Therefore, we may see some reversal in the dollar weakness at least against the euro while the U.S. dollar remains weak against emerging market currencies.
GHARIB: So now let's talk about your stock market prediction number five, new record highs for stocks. We see no evidence of a rally or anything so far in 2008. What's going to be the catalyst for stocks to hit new records?
DOLL: It certainly has been a weak start to the year, Susie. For this one to come true, we have to escape a recession. We have to get to some point this year where the Fed having lowered rates, the confidence restores to the fact that the economy is going to be OK, albeit weak. That we are going to escape that recession and very low valuations in our minds relative to interest rates and earnings for stocks tells us that there is some opportunity for stocks to move up. We've got to get past this period of recession concerns and credit woes. That may take a bunch of months but in the back part of the year we think there's a chance for a rally.
GHARIB: Once again, you're predicting that large companies and growth stocks will be the winners and so will developing markets over developed markets. So what markets should investors focus in on?
DOLL: Within the U.S. because of our preference for large end growth, the U.S. multinationals make sense. And then as you point out the emerging markets because of good economies and reasonable valuations we think will lead the way again in 2008.
GHARIB: Prediction number eight, you say that oil prices fall. How low and why now?
DOLL: Well, our view is long term commodities led by oil will still go to the up side, oil because of strong demand and not a lot of additional supply. But oil prices are up more than 50 percent in the last 12 months. We expect some reserves to come on to the market and demand to weaken somewhat given the economies of the world. That should allow oil to consolidate below $100.
GHARIB: The sectors - the stock sectors that you have singled out are the same ones that you thought worked in 2007: energy, health care, information technology. You say that they outperform utilities, financials and consumer discretionary. Talk us through your thinking.
DOLL: Sure. The energy and tech stocks did do well in 2007. We want to add to that list again health care looking for some earnings predictability and independence from the economy. We think we're not out of the woods on the other hand with the domestic companies, consumer discretionary and the financials where the credit woes in home building problems continue. We're going to add to that list the overvalued utility sector.
GHARIB: All right. Got to wrap it up here. You're saying your prediction that the Democrats sweep in the elections. If that does happen, what impact will that have on the markets and the economy?
DOLL: We've got to watch taxes and trade. The two Ts we think will be the focus. We think the resolution is not positive for either markets, but politics will take a back seat to a lot of other positive developments in the years to come.
GHARIB: Real quickly in a few seconds. What's your best advice for investors in 2008?
DOLL: We think given the volatility we expect and an uptick toward the end of the year, we think dollar cost averaging makes a lot of sense here, Susie. Stick to the higher quality companies, the U.S. multinationals and don't give up on the emerging markets.
GHARIB: All right. Interesting list of predictions. Thank you so much, Bob.
DOLL: Thank you.
GHARIB: My guest tonight, Robert Doll, vice chairman and chief investment officer of Blackrock.
