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Notes from Schwab’s IMPACT Conference

At Schwab Impact 2009: BlackRock CEO Larry Fink and CEO and co-CIO Mohamad El-Erian agree: Economy recovering, but still a ways to go.

Schwab’s annual IMPACT conference for its affiliated RIA’s opened yesterday evening in San Diego. The first general session was packed, as 2,500 conference attendees poured in to the San Diego Convention Center. Advisors, exhibitors and other attendees were three and four deep along the walls and along the back. The crowd listened intently to the discourse between BlackRock Chairman and CEO Larry Fink and PIMCO CEO and co-CIO Mohamad El-Erian. The Q&A was kept moving thanks to moderator Tyler Mathisen of CNBC.

Neither BlackRock CEO and Chairman Laurance Fink and PIMCO CEO and co-CIO Mohamad El-Erian believe that the U.S. economy is on firm ground, but they agree it is recovering. On a scale of one to 10 with the highest number as the "abyss", Fink put the U.S. economy at a six. El-Erian put it at a four.

But the two—arguably among the nation’s most powerful financial executives—differed on the details.

"We are still in control of our destiny," El-Erian says.

Fink partially disagrees: "I believe on the margins that we're losing it." For example, China is starting to execute non-dollar-denominated transactions in places like the Congo.

The U.S. was at a nine out of 10 [with 10 being the abyss] last fall at the time of the Lehman Brothers collapse, Fink adds.

El-Erian tells wife to make major ATM withdrawals
The economy was so bad on a couple of occasions last fall that el-Erian admits that he ordered his wife to go straight to a cash machine. He was concerned that the banking system would temporarily shut down and his family would not be able to purchase anything over a weekend.

El-Erian adds that the U.S. is still in danger of facing a long period of decline like the one Japan suffered. “We are not at escape velocity from this crisis," he says.

Fink is more optimistic on this score. "We are not Japan," he says.

The big difference is that Japan was a victim of its own demographic trends (too many old people), whereas the U.S. should be buoyed by the demand created by a high ongoing birth rate. This wave of young people drive purchases of homes and automobiles, he says.

But like almost everything uttered by these men, Fink qualified this opinion. "It's going to feel like Japan because of subpar growth," he says.

Neither executive expressed much optimism about the ability for regulators to improve matters, though both of them agree we need more regulation. But, alas, "It's easy to talk about regulation; it's difficult to implement it," Fink says.

El-Erian says regulation has its price the way that lowering the speed limit does. Both men agree that there have been big lessons learned by financial institutions and governments about big systemic risks related to leveraging debt that are not likely to be repeated soon.

"The key is to be able to afford your mistakes," El-Erian says.

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