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Dividends, Buybacks, Driving Stock Market Rally: Blackrock's Fink

Tickers in this article: BLK

NEW YORK (TheStreet) -- Dividends and buybacks, rather than more meaningful factors such as increased profitability or a strong economy, are behind the current stock market rally, argues Blackrock BLK CEO and Chairman Larry Fink.

Speaking in New York at the 2013 conference hosted by the Securities Industry and Financial Markets Association (SIFMA) Fink blamed "dysfunction in Washington" for "a large component of our anemic economy." That dysfunction, he argues is holding back hiring and capital expenditures.

For example, Fink says low natural gas prices in the U.S. are creating big demand for non-U.S. companies to build factories here. However, he argues foreign CEOs are reluctant to invest because of the uncertain political environment in the U.S., such as the battle over whether to extend the debt ceiling.

Fink also blamed relatively short CEO tenures for the lack of investment. He says the average CEO lasts just five years, giving them a short period of time to build consensus on their boards of directors, among shareholders and employees. That environment, he argues, CEOs to keep shareholders happy with short term rewards such as dividend hikes or share buybacks rather than making long term investments.

Nonetheless, Fink, who says he just spent eight weeks traveling in the Latin America and Asia, proclaims himself "very bullish on the U.S."
"The delta of economic success in the next 20 years is not going to be...cheap labor. Its going to be countries that have the most advanced transportation and the cheapest energy sources. While Fink acknowledges U.S. passenger trains are arguably "might be fourth world," he says "we never talk about our freight trains," contending, "we have the best network of freight trains in the world."

Other issues highlighted by Fink include President Obama's Affordable Care Act. Since healthcare spending accounts for 18% of the economy, how it plays out, "could have a real impact," Fink said. He also returned to a constant theme of his, which is that Americans don't have nearly enough retirement savings. As the world's largest money manager, Blackrock has an obvious stake in getting Americans to increase their investment savings.

-- Written by Dan Freed in New York