Goldman Sachs CEO Lloyd Blankfein says he can easily explain what’s going on in the equity market right now.
The rest of the market, not so much.
In an interview with CNBC — his first TV appearance since being diagnosed with lymphoma and undergoing chemotherapy — Blankfein said he’s “generally sanguine” on the markets right now.
“This adjustment, certainly in equity prices, makes sense to me,” Blankfein said.
“If it’s a slow growth world and the multiples are shrinking, and you multiply the earnings times the multiple as you should in a riskier environment, you kind of get to an S&P that we’re approaching now.”
Stocks have taken a dive in 2016, but Blankfein says they are fairly valued if you consider the fact that we’re in “a riskier world with more pessimism now.”
Of course, he said, that sentiment can change on a dime and earnings can start to grow as more confidence returns. But for now, the stock markets make sense.
“I can explain why it is — I’m not looking for extraterrestrial causes,” Blankfein said.
Blankfein is less sure about the impact of low oil prices on S&P 500 stocks. The low oil price itself, he said, is a result of oversupply.
“And it’s a self-fulfilling prophecy,” he said.
Whether it’s due to Saudi Arabia’s decision to continue production to defend its market share or increased supply due to fracking — oil prices have taken a dive. And recently, the S&P has followed.
“I don’t really know why S&Ps would have that reaction to the underlying cause,” Blankfein said.
And the current interest rate environment, Blankfein said, he understands even less.
Last week, the Bank of Japan was the latest central bank to take official interest rates into negative territory.
“The fact that you can borrow money for free in a lot of places, or nearly for free in a lot of places, and people can’t think of a way to earn more money than zero off of that — it makes it worth their while to borrow,” Blankfein said.
“So now you’ll say, ‘We’re going to charge you for not borrowing money from us’ — that’s a big ‘whoa.'”
He said that sentiment is bad in the markets, and the political environment is ugly, and it’s adding to a “general malaise.”
“But frankly I think this negative sentiment is not justified by the reality of the numbers.”
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