TIAA-CREF's President On Investment Strategy
MELISSA BLOCK, host: And we're joined now by Roger Ferguson, the president and CEO of one of the world's largest providers of retirement services. TIAA-CREF manages retirement funds for some 3.7 million Americans through thousands of institutions, including NPR, and I should say that includes my own retirement money. Roger Ferguson, welcome to the program.
ROGER FERGUSON: Melissa, thank you very much. A pleasure to be here and a pleasure to meet one of our participants.
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BLOCK: OK. Great. We just heard in Ted Robbins' story Gina Babunovic talking about taking a more conservative approach, minimizing her risk. But the volatility is obviously unnerving for a lot of would-be retirees, retirees down the road. How do you see where we are right now, economically? And what do you see looking forward?
FERGUSON: Well, first, I agree. The volatility in market is uncertain. The cause of that volatility is some uncertainty about the outlook for the global economy. The U.S. is in a very, very slow recovery, and also, European uncertainty is now adding to all of that volatility as well. And finally, obviously, we've had some recent news events in Washington that, I think, are not - add anything new to the overall picture but shining a spotlight on some of the difficulties.
BLOCK: The fight over the debt ceiling debate.
FERGUSON: Yes, indeed.
BLOCK: You know, it's easy for people - easier maybe for people who are younger to look ahead and say, OK, I'm looking at the long term. I'm not going to focus day to day. But what about for people who either are on the verge of retirement or depending on their retirement accounts right now and they've seen their portfolio values shrink substantially? What do you say to them?
FERGUSON: Well, three things. First, as we heard in the earlier piece, this is not a time to panic. Secondly, even if you are on the verge of retirement, even if you are retired, you still have to have a long-term perspective. Americans, fortunately, are living longer. Many will be in retirement for 25, maybe 30 years. The third is absolutely think through what one's risk appetite might be and adjust your asset allocation gradually, probably to something more conservative, but do not give up the chance for some upside potential that comes from having equities as well.
BLOCK: There is this oddity right now that even though there was this intense debt ceiling debate and the S&P downgrade of U.S. risk, people are flocking to U.S. Treasuries. Do you still see that as one of the safest bets for investors even though right now the yields are extremely low?
FERGUSON: There's no question in my mind that U.S. government securities are going to continue to be a safe haven because of the strength of the U.S. economy, underlying strength, even though we're going through a soft patch now.
BLOCK: Where do you see that underlying strength in the U.S. economy that you're talking about?
FERGUSON: Well, look, obviously, we're struggling through a very weak housing market now, unemployment higher than we would like, but yet we're seeing that corporations are still doing well. And then, you can think of a number of very important economies or countries that depend very much on the U.S. So, you know, I believe firmly over the long period of time the U.S. will continue to be the leading economy.
BLOCK: You mentioned the corporations that are doing so well, and many are seeing record profits. At the same time, for a lot of those companies, those profits are not translating into jobs. You serve on President Obama's Council on Jobs and Competitiveness. Help us understand why that is and what would turn that around.
FERGUSON: There won't be, I think, a simple thing that will turn it around. The reason that we're seeing what we're seeing, I believe, is indeed that businesses have been able to increase profits, while at the same time not increasing jobs. That's an increase in productivity. I think the things that will turn it around will be working through the high degree of leverage that households still have, thereby giving consumers a chance to appropriately re-enter the markets, and that will give businesses a greater sense of confidence that they can then start to hire more individuals.
BLOCK: Let me walk that back just a little bit. When you say households working through leverage, explain what you mean.
FERGUSON: Oh. Many households have taken on a great deal of debt during the very good times, much of that went into housing itself. We've seen that housing prices have come down. Many individuals are uncertain about their ability to continue to support their mortgage, and thereby or therefore many individuals are tightening their belts a little bit. But today, as we site here at this interview, retail sales numbers came out that are actually surprisingly strong, suggesting that we may be starting to see some strength in the consumer sector that we haven't seen heretofore.
BLOCK: I wanted to ask you about an op-ed that ran in The Washington Post today by Bill Gross, the founder of PIMCO, the world's largest mutual fund, and he wrote that debt, he says, is not the disease, it's the symptom. Let me quote from his piece. "Washington hassles over debt ceilings instead of job creation in the mistaken belief that a balanced budget will produce a balanced economy. It will not."
And Bill Gross says the emphasis on spending cuts in this whole debate will put a constrictive noose around demand and investment. Do you share that view?
FERGUSON: I think what we have to think through is what's called for in the short term, the intermediate term and the long term. In the short term, I think we understand that the economy is weak and, therefore, probably continue to need support from various sectors of the government.
In the intermediate term and certainly in the longer term, we will have to have a government that is thinking through how to better balance its own expenditures and revenues, and individuals will have to do the same thing. And in the very long term, I think American society will have to move towards being a society that's more focused on savings and investment, more focused on exports as we encourage other parts of the world to be much more focused on taking imports from the US and building up their own ability to have domestic consumption.
BLOCK: So would you share the view that, in the short term, you need stimulus to get this economy going again?
FERGUSON: I think that's going to be important in the short term, but we also have to think through a program that gets us from stimulative policies of today into less stimulative and a more balanced growth trajectory going forward.
BLOCK: Roger Ferguson, thanks so much for coming in.
FERGUSON: Oh, it's my pleasure. Thank you.
BLOCK: Roger Ferguson is the president and CEO of TIAA-CREF.
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