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BlackRock Managing Director James Keenan on how fiscal cliff uncertainties are impacting investors’ strategies.
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It's being called a dividend rush.
Lots of companies offering special dividends to shareholders are moving up their dividend payout date to -- next year's tax increase.
For more on what it means for investors I'm joined by James Keenan managing director of BlackRock it's great to have you here but I you know we were just talking in the break about the fiscal cliff and how might be resolved you have an interesting point of view on -- share with our viewers.
But I would.
We think that you know this is a part of the deleveraging process and moving to a point where.
The US government is have to -- to get more fiscally sound right and so obviously less onerous.
Less it was a much more heated argument with you know within our congress around the debt ceiling debate and obviously of the Tea Party.
They put in the sequestered cuts announced the fiscal cliff now I think globally it's largely viewed as something that would be pretty draconian and Ben Bernanke's comments -- that.
I don't honestly think that you're going to see grand bargain this year but I do think you'll see -- steps to start to.
Have a down payment -- say.
Of working our way into phasing in the short.
Resolution may be that.
Let's is at least get past the deadline and detonating that maybe then we move into a bigger discussion at.
Of real tax reform entitlement reform is that somebody.
Something that somebody in your position would favor -- Yeah I didn't that structurally we need to see real reforms both on the on the spending side as wells on the tax side.
I don't think you're gonna see that over the next four weeks.
But I think you'll start to see that and -- -- phases of that.
Having an all Conrad wants I think is going to be at a decent shock and that's the and that they -- percent.
So I think you'll start to see that -- -- and you'll start to see both sides and already -- sort of see the Republican side of the house has talked to except more of willingness to see more tax increases but he need to see real structural reform.
You know you run 89 point five billion high yield bond fund read what you hear from investors how worried are they about this we've already been told.
By S&P by Moody's look if you don't get it together -- -- downgrade you again that's gonna make it very difficult for us to finance this sixteen trillion dollar debt we have.
Yeah I mean as.
Obviously a lot of uncertainty since 2008 there's been a lot of uncertainty and -- -- the fiscal cliff is what -- markets are focused on right now and you saw the reaction post the election and the uncertainty around the cliff in the re pricing of risk.
-- I think investors.
In the United States as well as companies globally are nervous about it then you start to see spending start to get cut back in the uncertainty in the next year.
You know we've seen companies moving ahead of of this -- fiscal cliff to pay their -- and add the dividends out faster so people don't have to pay so much -- said that.
Let's face it people want their boards don't have to pay so much in taxes people on the company's -- what we've seen in many cases.
-- -- that go far enough for do you think that people are gonna be unloading.
Dividend paying stocks are -- going to be selling parts of their portfolio.
In advance of the day.
Well I think every UC capital gains selling and and and that type of activity in the market.
The in the special dividends that you're talking about part of that is that the getting ahead of the potential tax increases.
But another part of that is just the uncertainty in the market -- -- when a company is starting to.
Give dividends back it's because they're not deploying any growth I didn't think that is in largest.
All this uncertainty you talk to imagine -- CEO CFO the company.
And they're not sure about the longevity of there demand or are they gonna -- money into new projects so he's -- them hold back on.
Project spending or employment.
And since they don't have the certainty around out -- due to handing cash back to there shareholders.
Well here it -- high yield bonds have as a fiscal trip.
Cliff.
How does it treat high yield bonds are you gonna take a big hit are you concerned about how investors will if you don't regard.
-- -- Yeah I mean high yield -- it is largely we lend to more levered companies but.
-- senior to the equity so there's a more stability in the high yield market trades but about half the volatility of the equity market because of that the seniority.
If you look at our market it still tied to the health of corporates.
And if we do want to fiscal -- that -- into recession is going to increase the probability.
The faults and then you'd see risk premiums increase so.
We don't think that's the case as of right now because we still think the base case is that you'll start to see.
I'm moving now probably won't be tomorrow but.
As you started -- to the end and that the year of the upstart to see an agreement of how we going to move forward of avoiding a fiscal cliff.
But really -- -- that's about.
I love them.
A case for optimism much and thanks for coming on tonight really educate your time we should.
