One on One with Robert Doll of Blackrock & Josh Feinman of Deutsche Asset Management
Tuesday, September 08, 2009
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SUSIE GHARIB: More analysis now on what's next for the economy and the markets. Joining us Robert Doll, global chief investment officer of equities at Blackrock and Josh Feinman, chief economist at Deutsche Asset Management. Gentlemen, welcome to the program tonight.
ROBERT DOLL, GLOBAL CHIEF INVESTMENT OFFICER, BLACKROCK: Hi, Susie.
GHARIB: Josh, let me begin with you. As we reported, gold prices jumped; oil prices were also up sharply. How should we interpret all this information? Is it good for the economy or is it something else at work here?
JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MGMT: Well, I think if you look back during the teeth of the economic and financial crisis, the dollar was rallying on flight to quality. People were scared, flocking to the liquidity of U.S. assets. Commodities were falling, because global growth prospects were deteriorating. In recent months as people have felt a little better about the economic outlook, the financial crisis has receded. The dollar has fallen off some and commodities have rebounded. So I think on the whole I would view that as positive. If things were to move too quickly, it could undercut the recovery.
GHARIB: Bob, go ahead.
DOLL: I'd add to two points to that. One, both gold and oil we know are global commodities and of course many parts of the globe, emerging markets in particular are back on their feet. That's driving those prices up. And of course as you mentioned, the dollar, the dollar is down. That's part of the reason commodities are up.
GHARIB: Well, Bob, part of the reason that the markets were up today was because of this commodities rally. Do you see this as a bear market rally as a lot of people are calling it? Or is it the beginning of something more bullish?
DOLL: I think with a 50 percent rise it's hard not to use the bull name from where we've come from March Susie, as you know. If by a bear market rally, one means we're not going to make a new all-time high that would be 1550 on the S&P, I concur. So in that sense we're in a cyclical bull market in the context of no new high until an intervening bear market.
GHARIB: Are you seeing more money flowing in? Are you seeing new money coming into the market, Bob?
DOLL: Yes, grudgingly, Susie. As you well know, returns on cash, money market funds near zero. And when stocks are moving up and other risk assets, zero is not a very fun rate of return. So all that cash on the sidelines, some of it is finding its way back into equities.
GHARIB: Josh as you know, there's a lot of concern about the job market picture and with so many people out of work, it's hard to see how we're going to have a recovery. What are your thoughts on that?
FEINMAN: Justifiably so. Clearly the good news is the labor market is not deteriorating at anywhere near the speed with which it was in the early part of the year. The bad news is we're still in a pretty weak labor market. We're still shedding jobs. The unemployment rate is still drifting higher, not as rapidly as it was earlier in the year. But I feel that the overall economy is recovering, the labor market may lag it a bit and it will be a while, probably not until next year until we see net positive job creation and a cresting in the unemployment rate.
GHARIB: Bob, do you agree with that?
DOLL: Yes, I do. As Josh pointed out, the unemployment statistics are lagging indicators. The economy will long have begun to improve before employment does. I think the other side of this is if we have a sub par recovery, which many of us are looking for. That means the unemployment rate will remain sticking to the high side. It may be quite some time before it's back below 8 percent, for example.
GHARIB: And how much higher is it's going to go before it begins to fall (INAUDIBLE) ?
DOLL: I don't think a whole lot higher. I think we may see a number with a 10 handle on it. But I don't think we're very far from the high in unemployment.
GHARIB: Josh?
FEINMAN: I agree. It may drift a little bit higher, not too much higher. But I would certainly echo the point that it's going to be years before we see the jobs that were destroyed during this recession fully come back and the unemployment rate come back down to what it was prior to the crisis.
GHARIB: Now both of you mentioned about the dollar and today it traded lower against all currencies in the lowest level for the year. What are the implications of a weak dollar for the economy and for the stock market? Josh, you first.
FEINMAN: OK, on the economy, it's a bit of a double edged sword, but on the positive side, it does give exporters a bit of a leg up on the competitiveness side. And it does provide a little bit of a guard against inflation moving too low. But on the down side, to the extent that it does contribute to some upward pressure on commodity prices, that could put a little bit of a dent on consumer spending power.
GHARIB: Bob, what are your views on that?
DOLL: I would echo those and add to it that the stock market and earnings are also a two-edged sword. On the one hand, you have translation that improves profitability as the dollar declines, but on the other hand, you have the head wind of higher prices for consumers which can slow economic growth. So it's a double-edged sword. That's why a stable dollar policy can make a whole lot of sense.
GHARIB: Bob, this is the time of year that a lot of people are reexamining their portfolios, trying to figure out what investment moves they should make for the rest of this year. What advice can you give?
DOLL: I make two points, Susie, one, quality. High quality is not selling as much of a valuation premium to low qualities. So make sure whatever sector I own, high quality. From a sector standpoint, you want some cyclicals. That's energy. We want some defensive names. That's health care and we want some growth. That's technology.
GHARIB: Josh, just to wrap it up, tomorrow President Obama is going to speak to the nation. Besides health care, it will probably be some kind of pep talk. What do you think that any impact it might have on consumer confidence and the market to the extent that you can talk about that?
FEINMAN: Yeah, I don't think too much. I think clearly he's going to try at the top of the list is to sell the health care agenda. He's just put so much of his political capital at stake there. We'll see. I think there's a lot of pressure. There's going to be a lot of compromise that's going to be necessary to get this through because it does not have a lot of momentum right now.
GHARIB: All right. We'll have to leave it there. Gentlemen, thank you so much for coming on the program. We appreciated hearing your thoughts.
FEINMAN: Thank you.
GHARIB: My guests tonight, Robert Doll, global chief investment officer of equities at Blackrock, and Josh Feinman, chief economist at Deutsche Asset Management.
