Why the Worry? Fundamentals Rule: Stan O'Neal of Merrill Lynch waxes confident on leading a Wall Street investment house through this tumultuous era in the global markets.(Interview)

Byline: Rana Foroohar

Ascents don't get much steeper than Stan O'Neal's. The grandson of a slave and now CEO of Merrill Lynch, O'Neal remembers picking cotton in an Alabama field before earning his M.B.A. at Harvard and working his way (quickly) up the ladder at General Motors, and later Merrill, where he took the top post in 2002. Over the past few years, his cost cutting made the $50 billion bank one of the leanest and meanest in the business (as well as a potential merger target, say some). O'Neal discussed his plans for leading Merrill through today's turbulent markets with NEWSWEEK's Rana Foroohar. Excerpts:

FOROOHAR: How does all the talk of market uncertainty--energy prices, inflation, terror--affect your strategy in 2005?

O'NEAL: Actually, I think the business environment is a pretty good one. The U.S. economy has sustained growth through the bursting of the bubble, corporate scandals and a very tough political climate. Japan is growing. China obviously has introduced some volatility into certain sectors, but by and large it is a contributor to world growth as well, and India has been able to sustain a growth rate in excess of population growth for the first time in a long time. The U.K. economy continues to be reasonably strong, France and Germany a bit less so, but not a drag overall. We haven't had that breadth of positive momentum in a long time.

What will be hot in the coming year? Commodities? Hedge funds? Debt?

It's hard to imagine, given what's going on in the global economy, that commodities wouldn't play a bigger role in investment. I think hedge funds are also a growing phenomenon. Participation in hedge funds increases the efficiency of almost every sector of every asset class. We just have to make sure that those who are investing in hedge funds actually understand what they're doing, and that it fits within the profile of someone who can afford to have them as part of their portfolio. The problem is, as you create more hedge funds, you increase the probability that more of them, in sheer numbers, will not succeed.

Your take on the recent flight from stocks?