Blackstone’s Wien: Stocks Will Rebound

Monday, 23 Jul 2012 12:11 PM

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Investors have a right to be angry about the recent financial scandals in the headlines, but stocks will rebound, according to Byron Wien, vice chairman of Blackstone Advisory Partners LP.

“You don’t have any heroes,” Wien told The Wall Street Journal. “You pick up the paper and you read about Peregrine,” the futures brokerage firm whose chief executive officer admitted to stealing millions of dollars from clients.

“It just seems like the whole system is corrupt. And so that has to have an effect on confidence,” Wien said. “I think this is a real problem and it’s going to linger for a while.”

Wien believes that investing has been replaced by stock trading, noting that the average holding period for stocks has dropped to seven months today from eight years in 1960.

“I think the public feels that professionals have taken over the market and the playing field isn’t level for them,” Wien said, noting that many investors have instead bought into bond funds.

“And the only thing that would change that is if the stock market started to perform very well again,” he said, because then investors would feel that they are missing something.

Wien believes stocks are likely to outperform bonds, and that many investors will get over their concerns about the financial system once the market is rising again.

Despite all of today’s economic problems, Wien is “actually kind of positive on the U.S. because I think some good things are happening.”

As for the so-called “fiscal cliff,” Wien thinks we will avoid most of it, regardless of who wins the White House in November.

“Disaster has a way of not happening,” he said.

New York University economist Nouriel Roubini wrote in a Project Syndicate column last week that the increase in U.S. stock prices in recent years has been mainly due to the Federal Reserve's moves to stimulate the economy.

The Fed may move again to prop up the country and stave off recession, but results will be weak and stock prices will plummet when the monetary sugar rush ends, Roubini wrote.

Previous calls for U.S. gross domestic product growth of around 3 percent this year have been off, with forecasts being slashed.

"The first-half growth rate looks set to come in closer to 1.5 percent at best, even below 2011’s dismal 1.7 percent," Roubini said.

"And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices and a resurgence of U.S. manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013." Roubini wrote.

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