Bloomberg News

Blankfein Says Wallowing Investors Exacerbating Global Turmoil

June 21, 2012

Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said “wallowing” investors are driving markets down, prolonging the global economic slump.

“Everyone is very negative,” Blankfein said at the St. Petersburg International Economic Forum in Russia’s second- largest city today. “Sentiment is still being dragged down by the crisis. Global activity as a result is very low. That’s why people are underinvesting.”

Stocks dropped and commodities declined to the lowest level since November 2010 after the Federal Reserve cut growth estimates for the world’s largest economy yesterday and a report showed China’s manufacturing may shrink for an eighth month. A composite index shows the services and manufacturing industries across euro nations contracting for a fifth month to the lowest level in three years as the European Union struggles to contain a sovereign debt crisis that threatens economies worldwide.

Still, Blankfein, who has run Goldman Sachs for six years, said he’s scouring the world for new opportunities in pockets of expansion, particularly in Brazil, Russia, India, China and South Africa. The BRICS countries will account for as much as 90 percent of Goldman’s growth in the coming years, he said.

“The crisis we are going through, while severe, is a temporary phenomenon,” Blankfein said. “There are others behind them. If you want to see where our footprint is going to be, look at the growth rates around the world.”

BRICS, Euro

China, India and Russia are all growing at an annual pace of at least 4.9 percent -- more than double the bottom end of the 1.9 percent to 2.4 percent range the Fed now expects for the U.S. this year. Emerging and developing economies as a whole will grow 5.7 percent this year and 6 percent in 2013 as Europe’s spreading debt crisis weighs down richer nations, according to the International Monetary Fund. The BRICS account for more than 40 percent of the world’s population.

With all eyes on European debt woes, Blankfein said policy makers should do everything possible to keep Greece in the euro. Greek political parties supporting a European bailout and austerity plan won elections on June 17, trumping calls for the country to abandon the 17-nation currency.

“The commitment to the euro is total,” Blankfein said today. “People should work hard on keeping Greece in the euro,” he said. “The consequences of this not working are generational.”

Stocks Fall

The MSCI All-Country World Index (MXWD) fell 0.3 percent by 8:04 a.m. in London as the Stoxx Europe 600 (SXXP) Index lost 0.5 percent and Standard & Poor’s 500 Index futures dropped 0.5 percent. The S&P GSCI Index of 24 raw materials lost 1 percent, extending a 1.9 percent decline yesterday. Oil dropped as much as 1.7 percent to the lowest since October and copper slid 1.8 percent. The euro retreated against most of its 16 major peers.

“Even though markets are cheap, we’re not back to a risk- on mode,” said Andrew Pease, Sydney-based chief investment strategist at Russell Investment Group, which manages about $150 billion. “Risks in Europe are not over by a long way.”

Goldman Sachs converted to a bank in the aftermath of the 2008 financial crisis. During Blankfein’s tenure that started in June 2006, New York-based Goldman Sachs generated the highest profits in its history and also the biggest losses since becoming a public company in 1999.

“The risk now is that people are wallowing in too much negative sentiment,” Blankfein said. “The rise in protectionism” is also a concern, he said.

To contact the reporter on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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