Goldman Sachs (GS) partner and chief investment strategist Abby Joseph Cohen spoke with Bloomberg TV’s Sara Eisen this morning. Cohen said “our feeling is that the next recession is some significant distance off in the future” but the numbers will “not be quite as vigorous” this earnings season.
Cohen also said she sees signs of a continuing bull market.
Excerpts from the interview can be found below, courtesy of Bloomberg Television.
On investing in the U.S.:
“It’s clear that many people have forgotten that the U.S. is still by far the world’s largest economy. Even with its outstanding growth over the last decade, the size of the Chinese economy is only about 40% of the United States. So clearly what happens in the United States has a significant impact on the rest of the world. Right now the U.S. economy is growing. Not as rapidly as we would like but it seems to be good, solid, steady growth.”
On investing in China:
“We do think there is deceleration underway in China. On a long-term basis, we think growth there will be good. But when we look at the other industrial economies, clearly the U.S. at this point seems to have a cyclical advantage and in some ways a structural advantage.”
“U.S workers are the most productive in the world, more productive than those in other industrial economies and of course, the developing economies. Our economy is doing better. I’d also point out that our financial system in the United States seems to be much further on the road to recovery than is the comparable system in other parts of the world.”
On U.S. stocks outperforming Europe and China:
“This is something that’s also been driven by valuation. At the end of 2011, what was priced into the U.S. equity market was five years of profit declines – never really a probable scenario, but investors were so nervous about so many things, that’s the way our market was priced.”
“Even after these rallies, the market offers good value but not as good as it was previously. But our feeling is the next recession is some significant distance off into the future. What we know is, bear markets can be sustained not by the most vigorous of growth but by growth that investors believe will hang on there for quite a while.”
On forecasts for this coming earnings season:
“Clearly, comparisons are becoming more difficult for U.S. corporations. Profits have been growing at a very robust pace for more than two years. Margins have been at a peak. And we do think that those numbers will not be quite as vigorous.”
“What really matters, though, is whether investors are saying to themselves now, we’re looking not just at this quarter but to the remainder of 2012 and into 2013. Investors seem to be much more comfortable about the intermediate term in the United States than they were even just a few weeks ago.”
“That is the sign of a continuing bull market. It doesn’t mean that the gains from here or the gains we’ve seen thus far should be extrapolated, but it does suggest that equities will continue to see some positive move. And one of the things, of course, to consider is the relative nature of stocks and bonds.”
“With interest rates as low as they are, there are many investors — especially those who have a long time horizon — saying returns from equities, even if they’re not as vigorous as they’ve been in the past few months, will probably be better than the returns from bonds.”
On the global economy:
“Our view is that the global economy has indeed shifted and will continue to shift. We see good, long-term growth from the advanced emerging economy. Not just China but Brazil, India, and some others.”
“But we also have to recognize that the United States has suffered a significant cyclical beating, but from an innovative standpoint, the United States remains the place in the world with more patents than anyone other, more investment in R&D than any other and the United States has really been the innovative engine for the rest of the world. There’s a little rule of thumb used in Silicon Valley, and that is the basic research is done in the United States, the development is then done in Korea but the production is done in China. One of the things our innovation panel has been focused on is how do we continue to keep the United States extremely innovative?”
“There are several components. One is good education for everyone, and also with a focus on STEM — science, technology, engineering, and math. Number two, that we continue to support good, basic research. The basic research being done now may not be seen in terms of fruition for decades. Keep in mind that the Internet and GPS were developed by the U.S. government decades ago, and then companies like Apple and Google are taking advantage of it now.”
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