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US Needs 'Risky' Bank Lending: JPMorgan Strategist

Published: Thursday, 21 Jan 2010 | 3:31 PM ET

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By: JeeYeon Park
CNBC.com Writer

Stocks continued to fall on Thursday as President Obama rattled the market with plans to crack down on Wall Street risk taking. How should investors be positioned and what should they watch for? David Kelly, chief market strategist at JPMorgan Funds, offered his analysis.

“We’ve had a lot of corrections along the way in this bull market rally, but there’s also some concern about the financial sector,” Kelly told CNBC.

“If you look at the earnings season so far, 85 percent of non-financial companies are beating their estimates, but it’s only 50-50 in the financial sector—so there’s still a lot of problems in financials and I think that is weighing on the markets.”

Kelly said one of the biggest threats to the economy is the lack of bank lending.

“In order to get bank lending, you need to get to build bank capital, you need to make banks feel comfortable about making risky loans."

He addressed Pres. Obama’s proposal of putting new limits on the size and trading practices of big banks.

“There’s nothing wrong with risky loans—the economy never got anywhere because of safe loans,” Kelly said.

“We know that there are a lot of issues that got us into this trouble, but we’re in a situation where people are not doing any reckless lending. I don’t think we should be too tight on banks in terms of constraining lending right now, when the economy really needs capital.”