Interview with Black Rock's Bob Doll
What follows below is the transcript of my interview with savvy, veteran investor Bob Doll on last night's show. Bob is a terribly smart and successful man with an impressive long-term track record. He helps manage $280 billion as chief investment officer for global equities at BlackRock Inc.
LARRY KUDLOW: Joining us now is BlackRock vice chair and director, Bob Doll, our great friend. Thanks for coming on in a tough night Robert.
ROBERT DOLL: Good evening Larry.
KUDLOW: All right, look, there is an election every day in the stock market. Investors vote with their money, and they are voting thumbs down. And there may be some good things out there, I don’t want to lose sight of that later when we talk, but I got to ask you right off the top, what is your assessment of this current downturn threatening the bottom? It’s a worldwide event, it’s not just the USA. It’s global Bob.
DOLL: It’s all about credit. It’s all about people not being able to pay their debt and the economy imploding as a result of that as you know Larry. And we are at a point now where we are testing those bottoms. As you pointed out in the front of the show, the S&P is 5 percent off the bottom and the Nasdaq is 12 percent off the bottom. So there is some room here. Our guess is we are in a bottoming process that really started in October, and we’ve gone sideways now for a few months. This will take longer until all the things that we’ve been throwing at this – lower interest rates, credit relief, thawing of the bond market – takes some effect. It will take longer.
KUDLOW: Tremendous increase in the old Milton Friedman M2 money supply, $600 billion since early September as a result of the Fed’s buying assets and expanding their balance sheet and pouring liquidity into the economy. The Baltic Dry Index suggests that commodities shipping is picking up around the world. But Bob, you know I say this every morning, every evening, I go through this, I’m getting clobbered in this point of view and I want to ask you a general thought. Is this country and the rest of the world moving left? Is it departing from free market capitalism? Is it suggesting to investors that the solution to the recession may be worse than the recession?
DOLL: Sad but true, I’m afraid you’re right Larry. It’s curious that on a day we get this so-called stimulus package signed, the market thumbs its nose at that package. I heard your interview with Senator Corker and the whole business about working on writing checks for inefficient businesses in this country. We need to reward efficiency. We need to create some incentives so we can come out of the mess, not protect those areas that are already defensive.
KUDLOW: So when investors see the Sunday talk shows, where Republican Senator Lindsey Graham starts shifting toward President Obama and touts nationalizing banks – which I think probably had a lot to do with today’s action, financials were clobbered again today – when you read about bank nationalization, this is like the most anti-shareholder thing imaginable. What do you make of that? How big a factor was that today? How big a factor is this going to be?
DOLL: It is a big factor. Each time we have this collapse in financials, which has happened several times, it’s usually the same day that you hear the word nationalization used often. And as you pointed out, and I agree, we have to let some capacity go in many industries. We can’t keep all this capacity. For example, in the financial system some banks won’t be around. And to protect them is probably not a smart move. It’s throwing good money after bad.
KUDLOW: I mean when you look at the list today, it was all the pro-growth, so-called cyclical sectors that got killed right? Coal, energy transportation, construction, the semiconductors, metals, mining, machinery, commodities. The stuff that should be going up if we’re on the verge of an economic recovery is not going up. There’s a six to nine or twelve month lead, it’s not happening, despite the money supply growth, despite the credit thaw that you point out all the time and I try to. What’s the message here in the stock market? I don’t want to give up on it. I’m never going to give up on it.
DOLL: And I don’t want to either. You and I are both optimists.
KUDLOW: But it’s a gloomy picture. What do you do here now? What do you do Robert? Give people some wisdom.
DOLL: I think a couple of things. One, have some patience. The Fed did not get even with the curve I would argue until December when they went to the zero interest rate policy. I think that we also need to recognize that all the measures in place will take some time. The big decline in the price of oil did not happen that many months ago. These things take time before they have an effect on the economy.
We have argued that 740 to 840, the gap between the November 21 and the October 10 lows is an area to dollar cost average carefully, slowly but surely, into equities. We haven’t spent that much time there, most of this year we have been above that range. We’re back into it now. This is when the rubber meets the road. We would be dollar cost averaging back into risk assets.
KUDLOW: All right, well that’s a positive view, and I thank you. I just want to read out to evening viewers, the S&P 500 is still 5 percent above its November lows. The mid-cap 400 is much, much better, that’s still 16 percent above. The smaller cap 600 is 8 percent. The small-cap Wilshire 2000, that’s a good small cap index, that’s up 11 percent. And the broadest measure, the Wilshire 5000 is up 7 percent. So, apart from the emotion of a bad day, you could say we’re still okay, we’re holding that bottom. And those bottoms are important.
DOLL: We’d agree totally with that view. We think the average stock is doing better than some of the broad averages, especially the Dow. And as result of that, the market is repairing. It is forming a bottom. It won’t happen overnight. But we would argue the next noticeable move in equities will be to the upside.
KUDLOW: One other thing here. Look, the stimulus package looks like a big welfare and transfer payment. There’s some small stimulus for middle and lower income consumers. There’s nothing in there for investors. There’s nothing in there for producers. There’s nothing in there for capitalists, okay? But I want to ask you, let me come back to this, another competing theory—and I’m trying to get everybody to think about this—the money supply. Milton Friedman. All right? Keynes is dead. Friedman’s dead. But we’re going to debate Keynes versus Friedman. You know, fiscal, government spending and fine-tuning versus monetary growth. This is the biggest buildup in M2 I’ve ever seen Bob Doll. Isn’t that going to have some salutary effect on the economy? Shouldn’t stocks be sniffing that out?
DOLL: Absolutely. It is a positive. We need to stabilize the velocity of that money before we can get the positive out of the growth in the money supply
KUDLOW: So at the end of the day, this is either the greatest buying opportunity in 70 or 80 years, or, or, or what?
DOLL: Who knows what the next episode brings. We don’t want to look at the end of the world. I don’t think it’s coming any time soon.
KUDLOW: You know what? I think you’ve just got to bet on the country. You’ve got to bet on the country at times like this. I think that’s the right call. Robert Doll thank you ever so much.
DOLL: Thank you Larry.