Frank talk with Bruce McCain: tackle problems head on; save our economy.

• Author: Cutler, Debbie
• Position: ECONOMY - Interview

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Bruce McCain is the chief investment strategist for Key Private Bank, and tours the country providing economic outlook for the current year and years to come. ABM met with him in May for a Q&A session on Alaska's, the nation's and even worldwide economics.

ABM: So what's the big news in the economy for 2011, the remainder of the year? Alaska and--nationwide and worldwide?

McCain: Well, at this point things look pretty good. But I guess, you wonder how much longer it can last. We certainly have a number of problems around the world--more so than in the United States and more than in the past economic cycles (worldwide). So, particularly if in the emerging markets the rising interest rates cause their growth to slow. Or if in--the same thing in Europe because the austerity spending--if we start to lose some of the exports that we've had, that could make it a lot more difficult for an economy that still has consumers who are struggling with budgets that are too fight and businesses that lack confidence, in part because their sales are still not fully recovered and in part because their costs are going up pretty rapidly and they're squeezed.

ABM: What about the Alaska economy?

McCain: I think it's a little less adverse here. Things have not been as bad in Alaska. Your residential markets--you haven't felt it as much as we have in the Lower 48. Certainly in terms of unemployment, it's been bad. But it hasn't been as bad. So for both reasons, I think that part's good. The bigger issue for Alaska is that you're heavily leveraged to energy and there are some problems unique to the structure of what's going on and the energy dynamics within the state that probably will have more effect on where you go than other parts of the country.

ABM: Do you think diversification is the key or do you think we just need to invest in more energy--oil and the gas line. And do you think that investment is a possibility for the future?

McCain: I think certainly, in most things, if you can diversify it makes sense, but there are limits to what you can do. You need to take a look at the resources you have, the smaller population, the fact that you are so far from the rest of the United States simply makes some things impractical. We (other Alaska leaders and I) were discussing the potential for a rail line to the Lower 48 (recently). There just isn't enough to be shipped back to make that economically feasible. I think that's the biggest difficulty for diversification for Alaska.

You have some huge advantages in terms of shipping things into some parts of the Far East. Anything you can do that would help to expand that part of the economy is certainly a good thing, certainly helps to diversify. But, as I say, there are going to be limits to just how much you can do.

ABM: Now with the Japan earthquake ... they were a big export country. What's happening there and what's the effect going to be short-term and long-term?

McCain: The best estimates are that there will be probably two or three quarters of recession following this. Although, some who have been to Japan say that it's really closer to business as usual than one might think. I think clearly the loss of productive capacity will certainly cause their economy to tip down somewhat. And they already had shown one-quarter of slowing growth. So I think the prospects for recession over the shorter term are extremely high in Japan. Then you'll have the economic boost that comes from rebuilding. They probably will get to that somewhat faster than we got into rebuilding after Katrina. And, that should help to lift not only their economy...