Larry Fink of BlackRock and Bill Gross of PIMCO sat down on Thursday with Bloomberg Television's Erik Schatzker for a conversation at an alumni event hosted by UCLA Anderson School of Management. Both men are alums of the school, having graduated five years apart.
Fink and Gross discussed the U.S. economy, Washington politics, Europe's crisis and Occupy Wall Street.
Fink on the slowdown in the U.S.:
"I think this is a continuation of 2008 and 2009. So I don't think this is a new crisis. I think it's just a continuation of what we experienced... And I think the fears of 2008 are so very much a part of our psyche that we just are continuing to run any time there is any fear. And I think the marketplace is in a very difficult position. But on the other hand, there are trillions of dollars of money sitting in cash, sitting in bonds. Owning a bond today is slowly eating away in your returns because if you have any projections in terms of what you need to live on when you retire or retirement plans, you're just not going to earn enough return. So I look at what's going on in the world right now. It is a problem. It may get worse. But I also see all the seeds for a real revival."
"These are really big structural issues and our governments are not addressing them as fast as they should but I still come to the conclusion that much of this is already priced in the stock markets and I'm not suggesting we can't fall briefly another 20 percent. If we don't fix Europe, we will."
Gross (below) on the slowdown in the U.S.:
"These are structural problems that can't really be addressed by Washington or policymakers in terms of cheaper money or in terms of fiscal spending."
Gross on Europe's crisis:
"The outcome will be decided in terms of this tussle between the private market, insurance companies, banks, private investment management companies attempting to sell all that was the ECB being a reluctant buyer. So it's not a determinable outcome at the moment but it's certainly in flux and very dangerous."
Gross on how the instability and uncertainty in Europe ranks among the risks to the American economy:
"Right at the top."
Fink on Europe's crisis:
"It is a very dangerous stake Germany’s playing. And many people would not play these stakes because the outcomes can be black or white. So I believe ultimately Germany does not want to see the abandonment of the Euro. In fact, I don’t even know how that can be done, because when you talk about the abandonment of the Euro and these countries moving back to their original currency, it would probably mean bankruptcy for every financial institution and maybe every large multinational company within those nations because their liabilities were still in Euros."
Gross on the Obama administration:
"The current leadership I think can be faulted in a number of areas, but primarily by emphasizing consumption in terms of policy fixes as opposed to investment... What the Obama administration's policies have really been oriented towards have always been towards providing benefits continuing consumption. What this country needs really is a policy which stresses investments."
Fink on what the U.S. needs to do to get out of its slowdown:
"We have to become a manufacturer again. We have to be more than just a consumer. And there are many ways we could restructure this economy for jobs, whether it is creating some form of infrastructure involvement with government and private sector."
Fink on what programs he would end if he was a member of the super committee:
"I would reach out to the American population and talk about that the entitlement program is at a crash course. It was designed at a period of time when the average American lived to 68... We’re going to have to address these entitlement programs. They’re going to have to be extended and beginning at a later age. That is a huge sacred cow. Privately, most politicians I talk to will say that. Obviously, publicly they can’t say that. And I don’t see any other way of reducing our deficits by $4 trillion to $6 trillion, which we’re going to need to do, any way but it’s going to be a combination of entitlement changes and tax increases of some form or changing deductions. At the same time, we’re going to have to change corporate taxation rates."
Fink on whether now is an appropriate time to be taking risk in investments:
"I think Chairman Bernanke is telling you to get out of bonds. I mean, he's pricing bonds to such low levels and they're continuing to buy these securities that, you know, it's impossible for me as a long-term investor to own bonds."
Fink on Fed easing policies:
"I was a big believer of quantitative easing 1 and 2. I think Operation Twist was a mistake. And any more form of quantitative easing I would find troublesome. The Federal Reserve has two responsibilities: Manage monetary policy. And they are the prime regulator of our banking system. So I think the Federal Reserve needs to be thinking more towards counter cyclical types of regulatory supervision."
Gross on who he would vote for today if the candidates were the same as the 2008 presidential election:
"I am disenchanted. I'm a registered Republican. I voted for Obama. Was there change that I could believe in? I hoped there was, but there isn't. The fact is, is that Washington is dominated by K Street and it's dominated by finance and by you know by contributions from large corporations which don't have the interests of Main Street and have the interests of Wall Street. So who would I vote for? I'd vote for neither."
Fink on Occupy Wall Street:
"This is not an unusual period of time. If you go back in history, we have had protesting that shaped and changed government quite significantly. I'm actually very happy with Occupy Wall Street because I think it actually, for the first time in three years, we may have fringe element symmetry. And when you think about the Tea Party, the Tea Party in my mind said a lot of really good things. But it did shape obviously the 2010 elections in a very big way…. we have to admit as a member of the financial press and members of the financial community, I would say Washington and the financial community, and that's embodied a lot by New York, we really did let down a lot of people…"Now, I'm going to admit it as a part of the financial community we let down a lot of people. I would like to see some politicians saying 'We did the same thing.' And then we can move on."