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General Public Doesn't Quite Understand Bond Market Risks

Interest-Rates / US Bonds Feb 12, 2013 - 10:51 AM GMT

By: Bloomberg


Goldman Sachs President and COO Gary Cohn spoke with Bloomberg Television's Stephanie Ruhle on "Market Makers" from Cleveland, OH today, one of the cities where Goldman provides education and funding for small business owners.

Cohn said that, "there is really only one way that interest rates can go over some period of time which is ultimately higher. I'm concerned that the general public does not quite understand the pricing of bonds and interest rates and the inverse correlation between the two."

Cohn on interest rate concerns and how Goldman Sachs is preparing:

"We have the natural concerns that everyone else has in the world. We have been in a 32-year bull market in bonds in the United States. Most of the major central banks around the world are in some type of zero interest rate policy or quantitative easing. This means to come to an end at some point. I am not predicting that it comes to an end anytime soon, but if you look at the normal progression of markets, there is only one way that interest rates can go over some period of time which is ultimately higher. I am concerned that the general public does not quite understand the pricing of bonds and interest rates and the inverse correlation between the two."

On the U.S. economy:

"My views haven't changed. When you look at interest rates and when you look at fundamental monetary policy you have to take a much broader macro view. It is hard to change your views very quickly. I was in Asia last week. Asia continues to perform well. I was in Indonesia, Hong Kong, Singapore. All things in Asia seem to be very well. That said, you still have an interesting situation in Japan, you have an interesting situation in Europe and you have an interesting situation in the United States. Ultimately, all of these situations are going to get reflected in some type of monetary or fiscal policy."

On Goldman's 10,000 Small Businesses initiative and why he is in Cleveland today:

"10,000 Small Businesses is one of two cornerstone projects that we at Goldman Sachs have. The first is 10,000 Women and the second is 10,000 Small Businesses. Each of them are $500 million dollar projects. We're here in Cleveland to celebrate the first graduation of our Cleveland class. This is not our first graduation. Cleveland is one in nine cities where we now have 10,000 Small Businesses programs going on. It is a program where we believe we can help drive the U.S. economy by educating small business owners around the world.

On the concerns of small business owners right now:

"I think small business owners, large business owners and medium business is owners all have the same concerns. It ultimately comes down to the economy. Small-business owners are usually in the customer service business. They need customers. They need their customers to be growing. They need the economy to be expanding. Obviously interest rates affect larger businesses more than small businesses. Another issue is that small businesses have less access to capital. That's something that we are also dealing with in our 10,000 Small Businesses program, where our over $300 million of our $500 million contribution is access to capital for these small business owners."

On whether small business owners are going to put the capital to work:

"Unlike the big businesses, small business owners, their ability to borrow money is very difficult. For them to get access to money they need to have a very distinct need for it. When we give out capital through our CDFI programs here in Cleveland and other places, the CDFIs go through excruciating detail to make sure the small businesses need the money, but more importantly will put it to work right away and help grow jobs and help grow the economy."

On why small business CEOs are more likely to hire people and grow than a Fortune 500 CEO:

"In some respect, the small business is very micro. They know exactly what is going on in the community and its neighborhood. It has its finger on the pulse. It does not have as much risk for the geo-political situation, the political situation. It is much more interested in what is happening locally in its direct community. The small businesses we have represented here today in Cleveland--we have 36 different businesses--each of them is quite micro in what they need and what part of the economy they service and they have a very real time feel of what's going on in their business."

On whether small businesses--as opposed to large corporations--have an understanding of places where they need to grow:

"We have been at this for about two years now. We have about 1300 graduates in our small business program. We have real data that over 70% of these small businesses after graduating from our program have actually grown revenue. 50% have increased headcount by going out and hiring people. We do have real data that shows that these small businesses with their concepts and ideas and our education and our mentorship can really go out and grow their businesses."

On what kind of women representation there is:

"Great question. Thank you. Over 50% of our small businesses are women owned businesses. Our minority population is quite strong as well. We have about 30+% of our businesses that are minority-owned."

On whether the 10,000 Small Businesses project is a hedging strategy for Goldman Sachs:

"That is not a hedging strategy. The best thing we can do for our business and for the U.S. economy is to help it grow. Growth of the economy is the fundamental driver of our business and the well-being of the country. Investing in these small businesses is our contribution to helping the U.S. economy grow."

Copyright © 2013 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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