I was at the Buttonwood Gathering this week in New York, a wonderful conference put on by The Economist featuring some of the greatest minds in business and finance.
BlackRock (NYSE:BLK) CEO Larry Fink sat in for a short panel. Below is a summary of my notes.
Fink started off talking about "short-termism." The world has a preoccupation with the moment, without enough focus on savings and investments needed for the long term. This isn't just an American issue or a Washington issue; it's global.
One of the biggest issues here, Fink notes, is inadequate retirement savings. The average American already has a severe shortfall in retirement savings. Overlay that with rising life expectancy, and you get a big problem. Fink notes that a 25-year-old healthy female can expect to live close to 100 years old. In that case, retiring at 65 literally means spending one-third of their lives in retirement. Very few people are financially prepared for that.
Fink says our preoccupation with the present, rather than the long term, is visible in our decaying infrastructure in America and Europe's inability to stabilize its finances. When people can't think beyond the moment, they become frozen, he says.
He told a story about having dinner with the manager of a big sovereign-wealth fund. The manager said his objectives running the fund were generational. So Fink asked him how he measured performance. "Quarterly," the manager said. It's a pervasive culture of short-termism.
The press loves short-termism because it thrives on fearmongering. Fink notes that no one watches the Weather Channel when there's a blue sky, but they do when there's bad weather. It's the same with financial news.
Fink says the single-most important issue for the next president is how he manages the fiscal cliff. He was appalled that not a single question was asked about the fiscal cliff in three presidential debates.
He thinks the fiscal cliff will play out like this: a $300 billion to $400 billion agreement on deficit cuts during the lame-duck session and a six-month deferral of the tougher agreements. Fink said he met with a congressman last week and asked him to pledge to the American people that if Congress does punt the fiscal cliff down the road, they agree not to take a recess until it's solved. People need to see that Congress is serious about this.
Fink notes that Europe got itself into a mess not because countries spent too much money, but because it let its competitiveness erode. Since the beginnings of the euro, southern countries have seen competitiveness with Germany fall 40% to 50%. There has been progress recently, with German wages rising and wages in southern countries falling. That competitive convergence will take more time, but it's progress. When people ask Fink what Europe needs to fix its problems, he says "time."
With the exception of the fiscal cliff, Fink is "very, very" bullish on the U.S. for two reasons: the rise in domestic energy production and an impending housing boom.
He recently had dinner with the CEO of a German company that is closing a factory in Germany and moving it to the U.S. because natural-gas prices are so much cheaper here than in Europe. The CEO thinks the U.S. will have a manufacturing renaissance. Juxtapose that with Europe, where energy prices are rising. "That will make competitiveness in Europe even worse," Fink says.
On housing, he notes that we need about 1 million new homes a year to keep up with household formation and scrappage, and yet we had 8 million unsold homes at one point. That's how big the bubble was. And it just takes time for that to adjust. Overhang is working out, and we're seeing pockets where housing is turning around and prices are picking up. If you look at the chart of rental prices and home affordability, owning has never been more affordable, he says. But psychologically, people aren't buying because they're frightened at the thought of a permanent loss.
In Fink's view, if there's stability and the upward trend continues, there will be a flood of people back into the housing market as young families in need of a home regain confidence. He thinks that within a year you'll see Pulte (NYSE:PHM) announcing a new lot of homes -- and people lining up to buy them.
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