Goldman Sachs CEO Lloyd Blankfein has heard enough people talk about uncertainty in the markets lately that, he says, it’s starting to sound “trite.”
So in a recent video posted on Goldman Sachs’ website, Blankfein delved into the causes of that uncertainty and why, in his view, everything is going to be OK.
“I hear from our clients, ‘Where are things going to go? What should we do?'” Blankfein said. “And I’ll tell you: it’s uncertain for a reason, because there are a lot of new things going on.”
Not only do we have a new administration under President Donald Trump that’s expected to take a significantly different policy stance than the former one, but it’s also significantly different from what we might have expected if Trump’s opponent, Hillary Clinton, had won.
“That’s a very wide gap,” Blankfein said, “and most of those policy changes are in the nature of stimulus.”
Under Trump, we can expect to see less regulation, rather than more; lower taxes, rather than higher; and a bigger commitment to infrastructure spending, Blankfein said. That has boosted GDP expectations and optimism.
Blankfein last spring described the “low-confidence” environment in the US and its impacts on various businesses within Goldman Sachs. At the time he said there were “signs on the horizon” that we were moving away from that period, including the Federal Reserve’s decision to start raising rates, rising employment levels, and low energy prices.
But, Blankfein said, the positive turn the markets have taken since Trump’s election should be viewed in the wider context of a previously-evolving macroeconomic environment. Expectations of rising interest rates, for example, were already baked in before the election.
Blankfein has previously said that the market rally that followed Trump’s electoral win was a continuation of a pre-existing trend.
“It was drawing people in the direction that it was already heading,” the chief executive said at the World Economic Forum in Davos in January.
‘Change in general creates opportunity’
In this week’s video, he pointed to some potential adjustments ahead, including diverging currency rates around the world as a result of diverging economic performance.
“The cost of that divergence, you’ll get differences in interest rates that could very well lead to differences in currency rates,” Blankfein said.
But that doesn’t mean we’re in unprecendented times, he said.
“It’s a vanity, always, at any given moment, to think, ‘My goodness we have challenges of a dimension we’ve never seen before — the world is more uncertain,'” he said.
“It’s always seems uncertain when you’re living in it, and it always seems so simple and sure when you’re looking back at it.”
Instead, Blankfein said, we’re simply undergoing a change from a cycle of low economic activity, very low interest rates, and a high level of pessimism about the future. Now markets are seeing more growth potential, more opportunity, and more optimism.
“So I’d say change in general creates opportunity, but change from a pessimistic state of mind to one of more optimism is the better of the two possibilities,” he said.