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Harlan Levy was an attorney at the Federal Communications Commission's Cable Television Bureau before becoming a reporter at WGTR-AM in the Boston area. He then worked as a TV news reporter at WXEX-TV Richmond, VA., WCIX-TV Miami, FL (winning an Emmy), and WVIT-TV, West Hartford, CT. He was... More
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  • Interview With Oppenheimer Asset Management Chief Investment Strategist Brian Belski: Eurozone Debt Problems Are Not A Major Factor In U.S. Economy. 0 comments
    Jan 23, 2012 12:35 AM

    Brian Belski is a managing director, chief investment strategist, and leader of the Investment Strategy group at Oppenheimer Asset Management. Previously he was the chief U.S. sector strategist at Merrill Lynch.

    Harlan Levy: The U.S. economy seems to be improving, given recent data, but is it too soon to say we're out of the woods?

    Brian Belski: No, especially considering the depth of the pullback, No. 1; No. 2, the general skepticism from investors and consumers; and No. 3, the over-reliance on sound bites by consumers and investors, which continues to put a swirl of speculation about the market.

    H.L.: What's your prediction for the U.S. economy this year and in 2013?

    B.B.: We are projecting 2.5 to 3 percent growth in Gross Domestic Product -- slow but steady improving growth. We want to be in a situation where we can up our projections rather than lower them. That was the trap of many economists last year. They had too high projections and had to bring them down.

    H.L.: Where are we in the housing market?

    B.B.: We believe housing is in the process of bottoming through the summer. Bubbles take 10 years before appreciable asset accretion occurs again. So if housing prices topped in 2007, 10 years from there would be 2017, so we're about halfway through the unwinding of the bubble. That's the bad news. The good news is that we're starting to see signs of bottoming and that excess inventory is being worked off, and that's a positive.

    H.L.: Some economists say that the immense sovereign debt problems in the Eurozone are a major factor in how the U.S. economy will fare. What do you think?

    B.B.: That is a fabrication in the press which has come to that conclusion and pushed it down our throats. No one knows for certain the magnitude, low or high, with respect to the eurozone situation. The press is blowing it out of proportion because they didn't do the work. When you do the analysis and look at the percentage of business done in Europe and the percentage of companies doing business in Europe it could be a positive for the U.S. Let's not jump to conclusions.

    No one is talking about the positives of a slowdown in Europe. For example, companies around the world could be much more comfortable doing business with American companies rather than European companies, given the consternation of ongoing events in Europe. That could be the positive that no one is talking about. So we believe that this instant conclusion that the problems in Europe will have a negative impact on the U.S. economy is way overblown and is one of those sound-bite conclusions that we cannot and will not support.

    H.L.: Is the stock market responding too optimistically?

    B.B.: No, because institutional investors are playing a near-term game of catch-up, given that No. 1, they underperformed last year; No. 2, they owned the wrong stocks in their portfolios; and No. 3, the fundamental constructs of the United States market is the strongest asset in the world.

    H.L.: What do you see ahead for stocks and the market?

    B.B.: We continue to be very comfortable with our 1,400 target for the S&P 500. It could occur sooner than later, but we believe it would be difficult to exceed 1,400 without a few things: No. 1, we need constructive and consistent job growth. No.2, we need to see some sort of definitive plan with respect to structural change in Washington D.C. What does that structural change include? A, cut costs. B, build revenues, and C, we need some sort of tax reform that will incentivize companies to employ U.S. workers.

    H.L.: So where are we with jobs?

    B.B.: Again, we need to see stronger structural change out of Washington in terms of tax reform and tax incentives to hire before we see substantive gains in employment, but employment overall on a short-term basis is improving.

    H.L.: How would you build revenues, and would you have to increase taxes?

    B.B.: It doesn't necessarily mean you increase taxes. You come out with new revenue streams or different revenue streams. No. 1, you offer a one-time repatriation [of U.S. companies' cash held outside the U.S.], and once that cash is here, you tax it at the revenue amount. NO. 2, you incentivize companies to hire. You give them a laddered tax situation for the next five years, putting forth a situation where you are able to hire employees, and those people you hire are paying income taxes. No. 3, you simplify the tax code where you go after those companies that are not paying taxes and simplify to the point where those companies that are over-paying taxes will come back down to reality where everybody else is paying. Those are three revenue events where you don't have to increase income taxes.

    H.L.: Should the tax cuts for the rich, the "carried interest" tax loophole - which allows private equity and hedge fund managers to characterize their labor income as a capital gain, taxable at 15 percent -- and other tax provisions favoring rich people be eliminated?

    B.B.: No. There are loopholes across the board that are not just about the rich, and that's all I'm going to say about that.

    H.L.: A lot of commentators talk about the widening income inequality in the U.S. as an issue of unfairness that must be addressed. What do you think?

    B.B.: Income inequality is a direct result of capitalism. If you want income equality, that's a more socialist communist platform, and history has shown that that doesn't work.

    H.L.: Should bank regulations be dramatically cut and are proposed rules just too complicated

    B.B.: There are four areas that we think could ultimately be regulated, one of which could be the hedge funds, two would be the futures markets, three would be the high-frequency traders, and the fourth would be the leveraged exchange traded funds.

    It is our belief that any legislation with respect to regulation should be clear-cut and concise, meaning the more noisy it is, the more paradoxical it is, the less likely people will be comfortable with it. We need to be able to sell it to the American people that, in fact, this will be a good thing. The more confusing it will be, the more no one will understand it.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GE over the next 72 hours.

    Additional disclosure: No other stock plans

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