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Goldman’s Lloyd Blankfein: ‘The odds of a bad outcome have gone up’

Shawn Langlois

‘I’d be planning for the contingency’

Getty ImagesGoldman Sachs CEO Lloyd Blankfein is feeling pretty good these days. DMAMBMCMDMEMGPREVIEWZBZBRZDZDRZFZGZQZRZSZTZU

CNN’s Christine Romans, in an interview that aired Wednesday, asked Goldman Sachs CEO Lloyd Blankfein, “what could possibly go wrong” in this roaring economy? His answer should send shivers through the investor community:

‘I haven’t felt this good since 2006.’

For one moment, we were all Christine Romans when she replied, “Yeah, that’s not what I want to hear.” Needless to say, everybody was feeling pretty good about the economy and the stock market back in 2006, until the wheels fell off and the financial system was pushed to the brink of collapse.

This, obviously, was not lost on Blankfein, as his chuckle made clear. The truth is, the Goldman(GS)boss does have plenty of concerns, including fears that a spending spree by the Trump administration could overheat the U.S. economy.

“The odds of a bad outcome have gone up,” he said, explaining that the economy was already growing nicely before the $1.5 trillion in tax cuts, $300 billion of additional spending and, now, the proposed a $200 billion infrastructure package.

“Don’t forget, all of these deficits have to be paid for,” and all this stimulus could be “too much of a good thing,” he said.

Blankfein knows all too well what can happen under such conditions.

“If the economy starts to overheat, and the Fed feels that it’s behind,” it will need to act, Blankfein said, pointing to the period leading to the dot-com bubble.

“I remember 1994,” he said. “That’s possible, too. That would be quite jarring to the economy.” At that time, the Federal Reserve tried to keep inflation in check with a hefty dose of rate hikes that took Wall Street by surprise.

Despite his concerns, Blankfein’s “base case” remains that the economy will stay on track, though he’s urging caution moving forward for retail investors.

“I’d be planning for the contingency that this turns out to be a worse time than people are thinking,” Blankfein told Romans. “With the Fed raising rates, with the withdrawal of QE, with the budget deficit widening out, I wouldn’t say this is the time I would max out on my risk.”

Judging from recent action, risk-on is back. For now. The Dow Jones Industrial Average(^DJI)and the S&P 500 have booked six straight gains, through Friday.

Read:The stock market’s new ‘wall of worry’ is built on inflation and rate fears



Shawn Langlois is an editor and writer for MarketWatch in Los Angeles. Follow him on Twitter @slangwise.



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