Tags: Fink | rates | Europe | equity

BlackRock's Fink: Low Interest Rates 'Creating Huge Global Pain'

By    |   Friday, 17 April 2015 06:40 AM

Central banks around the world are pushing down interest rates — to negative territory in some European countries — and that's hurting many investors, says Laurence Fink, CEO of BlackRock.

"Global interest rates are creating huge pain," he tells CNBC.

"This is something that's misunderstood and not talked about enough. Everyone appreciates how low rates accelerate the equity markets, but it's certainly creating quite a bit of havoc with a lot of our clients."

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. And almost six years into the economic recovery, the 10-year Treasury yield stands at a paltry 1.92 percent.

"I don't believe central banks appreciate what low interest rates do to the long-term interests of insurance companies, pension funds, retirement plans," Fink explains.

And what is the ramification of zero and negative rates for investors?

"If you think rates are going to stay that low longer, you're going to see more and more people moving into equities, into more alternatives. We're seeing that conversation now. We have one of the top-ranked European equity funds in the world, and we're seeing huge inflows into our European equities," he notes.

"I like European equities more today than I like U.S. equities. I like Asian equities more today than U.S. equities," Fink maintains. "U.S. equities as we all know outperformed for three straight years Europe and Asia, and it's catch-up time. "

Meanwhile, you can add former Treasury Secretary Robert Rubin to the list of those concerned that bubbles may be building in financial markets.

"I don't have a personal view on whether we now have [market] excesses or not," he said at a conference in Washington Wednesday, MarketWatch reports.

"But it certainly is a realistic possibility when you look at the U.S. stock market, which is near all-time highs, when you look at covenant-light and now non-covenant lending, [and] a vast increase in fixed-income [exchange-traded funds]."

As for stocks, the S&P 500 index has tripled over the past six years and now stands less than 1 percent from its Feb. 25 record high. When it comes to valuations, the S&P 500 carried a trailing price-earnings ratio of 20.47 as of April 10, up from 17.61 a year earlier, according to Birinyi Associates.

While the Fed is focused on inflation and the economy, it should keep an eye on financial markets too, Rubin said.

"I believe that the Fed should take systemic risk into consideration in monetary-policy decisions, even though excesses and bubbles are impossible to identify with confidence except ex-post."

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Central banks around the world are pushing down interest rates — to negative territory in some European countries — and that's hurting many investors, says Laurence Fink, CEO of BlackRock.
Fink, rates, Europe, equity
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2015-40-17
Friday, 17 April 2015 06:40 AM
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