Famed economist weighs in on Wall St.
Henry Kaufman calls market stats ‘disturbing’
Henry Kaufman, 90, the renowned economist, former managing director at Wall Street firm Salomon Brothers and author of Tectonic Shifts In Finan
cial Markets, shared his views with USA TODAY on the future of the American worker, tax cuts and the middle class, the retirement savings crisis and risks facing computer-driven markets.
Kaufman is president of Henry Kaufman & Co., an economic and financial consulting firm established in 1988. Q: Robots are invading the workplace. Is technology a threat to middle-class workers?
A: The greatest challenge that workers face and we as a society face is that labor over a longer period of time will become more and more obsolete. Labor will be replaced by machinery, automation, innovation, robotics and artificial intelligence (AI).
Q: Won’t fewer jobs mean more problems for politicians?
A: This would be a great challenge to the nation’s social fabric and how we maintain living standards for the average citizen — how we put people to work and how we retire them. How do we handle this? We cannot all be computer specialists, and even if you are computer literate, the obsolescence in that area will increase very significantly as AI begins to make inroads.
Q: Worker wages and raises have been lagging despite record corporate profits. Will tax cuts from federal lawmakers help the middle class as much as promised?
A: I have not seen anything, so far at least, that will really ease borrowing that households have to do to maintain their standard of living over the next three to five years.
Q: The stock market is booming and at record highs nine years into the bull run. Should investors embrace the rally or fear it?
A: There are some statistics that are a little bit disturbing. Stock prices are very high. Price-to-earnings ratios are very high. Interest rates are by historic standards quite low. We also know that there has been a huge amount of borrowing by corporations in this recovery. These are all warning signs.
Q: Do those yellow flags point to a big drop anytime soon?
A: We don’t yet have the conditions that would suggest a misfiring.
Q: So what could cause the market to misfire or sell off ?
A: A misfiring could come from computer problems in the financial system that cause trading glitches. A short-circuiting of major computers, where prices change rapidly and it is difficult to stop. Problems could occur if there was an international military event. But none of that is predictable or immediately on the horizon. Other possible causes are if the Federal Reserve tightened monetary policy significantly or if the U.S. dollar came under attack.
Q: Is there another financial crisis looming?
A: There will be another crisis. But it isn’t imminent.
Q: Is the economic optimism surrounding President Trump and his proposed economic policies warranted?
A: There are a few things to recognize here. No president of the United States, no secretary of the Treasury, no chairman of the Federal Reserve, no chairman of the Council of Economic Advisers has ever forecasted or projected an economic downturn. So you cannot really depend on the projections of those government officials.
Q: Any advice for middle-class savers and investors as the bull market ages?
A: I would suggest some increase in savings. Save somewhat more for a rainy day. Conditions in the financial markets can get somewhat better, but they are already quite good. At this stage of the cycle you don’t want to be an aggressive risk-taker.