BlackRock's Fink on Bonds, M&A, US Recession, Election: Full Interview
Larry, thank you so much for joining. Well, it's great to be here in Berlin. And Danny, thank you. So many of my friends here. So it's great to. Lots of friends in the crowd. So note no pressure, Larry. Look, let's let's start with the here and now, though. I mean, it's it's been this time of of a
reappraisal of risk in these markets higher for longer yields or at cycle highs. Tech stocks are in a correction. Worst month for stocks this year. Have markets adjusted enough? Have they adjusted enough to this new normal we're in? Well, I don't I don't know what is a new normal. I actually think every day is normal. I you know, the markets go up and down,
markets move, markets respond, Markets respond to political issues, political uncertainties. But I would clearly say we are in a period of time and with these mega cycles, we're at a period of time with so many transitions, whether it's a transition from deflation to inflation, a geopolitical transition, how does that where does that go? The fragmentation of supply chains is just beginning. We have policies in so many democracies that have moved from policies that I would say were embedded for more deflation, and our policies are more embedded in inflation. Well, as we adjust to that. You have Jamie Dimon, for example, saying rates in the U.S. could go to 7% and we're not ready for it.
Is he right? That look, we all have opinions. I mean, I've been saying for over a year, I want to know your opinion. My opinion is we're going to have ten year rates, at least at 5% or higher because of this embedded inflation. This structural inflation is unlike anything. And I think business leaders and politicians are not providing the foundation to help explain this. We have not seen inflation like this in over 30 years.
Actually, I was a young bond trader during the late seventies and and where we had hyperinflation. I don't I don't think we have anything close to the inflation of the seventies, but we have so much deeper structural inflation. And and we are underestimating what what this the change in geopolitics is so structurally inflationary. When when when I was in Davos earlier this year. I heard the phrase national security uttered everywhere. And quite frankly, I never heard those phrases uttered that often before, that in Army national security for chips or food or energy, obviously energy and all these issues. And the question is, at what cost?
And nobody answers that question. At what cost? Well, you said politicians, governments. And you do a better job of of of explaining this of talk. What would that actually look like?
Well, I mean, they have to recognize if we are going to focus on the whole the whole idea about restricting immigration. Big topic here in Germany. Big topic in the United States. We are down in the United States or close to 3 million legal immigrants.
We've changed the immigration policy. At the same time, there's so many job needs. And in the United States, we've had close to $1,000,000,000,000 of fiscal stimulus just beginning it's J curve. And these are huge job creators. And at the same time, we have restricted immigration. And as a result of it, you know, we see
more wage pressure. So at what cost? We have in the United States, a very protracted strike between the autoworkers and the auto companies. It has been reported that the union is asking for a 40% increase. So at what cost? What you know is a lot.
What does that mean for jobs? More, more jobs move. This is the conversation we're having now. We are, you know, because of the invasion of Ukraine and the realization in Europe, especially here in Germany, of the dependency on Russian gas. Every boardroom is asking themselves, where are our other dependencies? Yes, but as a dependency in China in and in terms of manufacturing, assembly is something that many companies have said we cannot. Does there need to be leadership,
though, to reinvigorate multilateralism? Or is that concept? Because in this era of French wearing reshoring, is that over? Do we need to rethink that? Globalization is still intact. It's just being reimagined. So whether we have our supply chains out of China now, we're moving them to Vietnam, Philippines, Eastern Europe, Turkey, India, Mexico is is one of the real destinations for North American demand. And so this is not global. By no means globalization is over. But as we are these supply chains, there's a reason why so many supply chains were so embedded in China, because for years and years and years, the cheapest, easiest place to do it.
And so in many cases, we're moving supply chains at higher costs, especially if you're onshore or offshoring to either Europe or the U.S., where you're having these labor conversations. But you may have all of this means is we're going to be more aggressively moving towards technology to add more productivity, whether it is using more robotics, A.I.. All of this is going to in the long run. That's what I'm saying. Markets go up and down. We have big changes. We have big changes in labor. We have higher wages in the long run. Companies adapt.
Businesses adapt. But the biggest issue for me and I say this to every government, a leader I see worldwide, what the world is missing today is hope. Hmm. I see more fear. Than any time in my business career.
What are you hopeful about, Larry? What is that? Look at I'm a long term optimist. And and and we built BlackRock on optimism. We are the largest retirement manager in the world. Okay. Why on earth anybody would ever put a put their savings into something that may have a 30 year outcome? My gosh, that is optimism. Okay.
If you're if you're not if you're not optimistic that 30 years hence is a better outcome, you're you're going to keep all your money in a bank. And but, Danny, what's going on in China is is a great example of fear. Before COVID, the Chinese, who are unbelievable savers, they say 35% of disposable income, 35%. Think about about that. Now, they did it because there's no safety nets of health care like we have here in Germany, no safety nets of retirement, one child family, all these, you know, dynamic issues during COVID and the fear and the lockdowns and the changes of policies. Savings rates in China right now are 50%.
And that fear and they're struggling to reinvigorate the economy at this point because they're frightened. But but what does that look like on the ground for the investors in the crown? You at BlackRock, how do you look at this? Is there a way to capitalize on it? You pull back. What do you do with a problem like right now I think in our megatrend said right now we're we are under invested in China. We believe structurally until we see savings rate, which is in my mind when we see savings rates decline and they're consuming more, that's an indication of more hope that that they don't need to save as much that they can consume. They could do other things. To me, these are very big macro trends. And but I just want to say the biggest issue is we as business leaders, we as political leaders, if we don't provide more certainty and more hope, this is what causes recessions.
This is what causes pull back that. So to be clear, because there are a lot of calls of a recession, hard landing, soft landing, no landings. They've they've all lost their meaning at this point. Let's let's be honest. So in this era of fear, of no hope, are we headed for that? No hope.
It's all you know, I'm hopeful. Let's hope Larry's hopeful. We're happy about that. But does that mean we are headed for recession right now? So I think we have to analyze that by each region, because the United States, our home mortgage market is based on a 30 year mortgage. So anybody who has a home mortgage, higher interest rates does not impact them. And so the transmission of high elevated interest rates in the US takes much longer to impact the economy, whereas in other places where you have more floating rate or like in the United Kingdom where you have generally a five year fixed and then it resets. And so let's assume 20% of the mortgages
have to be, you know, reevaluated at a higher level. That creates more immediacy, that higher rate. So I think we're going to see some economies enter recessions early. Which ones would that be? Well, I think Europe's anyone's more sensitive to the ones that are more sensitive, this elevated interest rate. And you're starting to see a real decline in GDP and other, you know, basically flat now.
But can they go into a more protracted recession, Whatever the recessions we're going to have, they're going to be quite modest. So I'm not even that fearful. But then I would just let me just say one thing then. But I but I believe if we have labor shortages, if we're getting back to this whole social issue of how are we going to be doing this in many areas, you may need a recession to bring down labor demand. And so and I think this is one of the things that's going to impact in the United States. You still have a very vibrant economy, the United States and as I said, the Jay Curve of the Infrastructure Act, the CHIPS Act, IRA, which is has huge implications that's going to be creating jobs.
And so it may require a more protracted Federal Reserve, and it may mean by 2025 that the United States economy may be entering a recession. But I don't see it any time in the near term. So throughout history of U.S. growth slowdowns, we have underestimated every single one of them. Are you confident we're not making that same mistake again? Look, if central banks can overshoot, if fear becomes worse, then consumers pull back and the recessions are going to become more protracted. We have elections in so many places the
world. We have an election in the United States. We have all that stuff. You know, we are going to have many political candidates who are going to.
A lot of fear. Yes, unfortunately. And I think the winner I think the political winner is the one who provides the most hope for the future or what people believe with the hopes of the Jews. See that, though? I don't see anyone projecting hope. I dearly hope so. I'm projecting hope. Larry, for president. I don't know. I'm too young.
That is that is very true. Look, you make an excellent point. I think half half of the population is going to be in an election next year. Could we then have a recession based on what you're saying? Not by a monetary accident, but by a fiscal accident. So in my travels, seeing governmental leaders. I talk about the need for more public private investing, whether it is in infrastructure, sustainability, whatever you want to say, power grids.
What I see is most democracies are having elevated fiscal deficits. I worry about it. I think it's going to be a crisis in the future. I believe we are hitting thresholds of just too much debt. The only solution we have now is reorient and re-imagining how we finance growth.
And I think the way we're going to be able to finance growth is public, private. There is so much private money that is looking for great long term investments to work, whether that is in power grids or infrastructure in sustainability, charging stations, you name it. You know, and so. In all our conversations is how can we reimagine finance? How can we find a better structure? And how can we then leverage public finance with private capital to augment growth? Right. And this is going to be the big key for the next ten years. Can I ask about how you're thinking about that at BlackRock? Because you already Yardi the world's largest asset manager. So so what is your goal now? Look, I had our goal is to provide a better financial future for more human beings. All our money is not.
Not a single euro dollar is our money. 100% of our money is our clients money. We have to do what our clients are looking to do. And I think we are a really good fiduciary that we work really well with our clients. We give them long term views. I really, when they ask me what's going on in the market, I really don't have a good answer because I don't really care about the day to day your business.
You care about the day to day business. I mean, our job is to is to give opportunities for long term investors to get earn a return and that they could have a healthy life in the future with dignity. Right. And that's our job.
And so if we can provide that advice to give more people hope with dignity in retirement, then I think we're going to earn more share a wallet. I do care about the day to day, Larry, but I also I, I know that I know the history and one that stands out as is 2009. You buy PGI, you buy shares, 6.6 billion. It was the Louisiana Purchase of Asset Management. And apologies for all the non-French keys and Americans not into my have to explain to them what the Louisiana Purchase is, but in other words, it was big. It was transformative.
Will you ever do a deal like that again? You think something so transformative for BlackRock? Well, I mean, when we did that, many reporters in the commentary said we're already too big and we were 2.9 trillion then and now we're 9.5 trillion. And so the answer is, yes, we are. We believe we have great opportunities to transform our company. Again, I am very excited about change. Let me be clear, We are as neurotic today as we were when we started the company 35 years ago. We're having a great time working with
our clients and we have I do see some very large opportunities for inorganic growth because what would be today's equivalent of ETFs in 2009 that are on the verge of this explosive growth? Oh, my gosh. I mean, getting back to this whole idea of working with government, public, private, it may not have that type of trillion dollars of explosive growth, but I do believe we can help make a difference in building better societies. We can prepare societies better working with governments in terms of preparedness for elevated temperatures in the world. You know, we believe we are going to have to move more rapidly towards decarbonization. We believe that hydrocarbons, by the way, are going to be with us for a long, long time. And that's why we're working with energy companies, not against energy companies.
That is why we said do not ever divest of hydrocarbons, which the far left doesn't agree with me, but to the far right disagrees with me. And so I guess we're doing something right when I'm getting attacked from both sides. But that is the measure, I think, attacks everywhere. Well, look, I mean, these these are massive global threats. Right. And they do require a level of trust. So how do you gain trust from the
skeptics, especially with some of the political dialogue happening in America, doing the right thing every day by making sure that we that the skeptics truly understand what we're doing? In many cases, they don't many people don't care what we're doing. They just are using us as a vehicle. But the most important thing, we provide choice for every client we work with every client. It is not our money and we work with them to try to have each and every client have a, you know, options and choice. And it is their money and they have to direct the money how it goes. But we just did a survey that was part of that article that 57% of our global investors are going to put more money into decarbonization technology. And let's be clear, we are not going to have a transition. Unless we can find technologies to bring
down the competitive cost of renewables, we cannot do that. We saw what happens with elevated energy prices just two years in Germany and in Europe. You can't have a transition. And more importantly, if we don't reorient and reimagine finance, we will never decarbonize the emerging world that we see when energy prices go up.
The emerging world uses more coal because livelihood and life is more important than the future. And so we need to re-imagine finance. We need and finance is going to have to find ways of bringing, you know, billions and billions and trillions to help them decarbonise. Right. We don't have the structure in the world today. We have a World Bank and IMF that was
created after post-World War Two. They're organized that we're banking was a prominent lender and they can't because of the Basel capital standards, because of Dodd-Frank. In the United States, banks can't less and more of that. You know, the world is one of the two of developing countries don't lend well, but yeah, well, I mean, the world's debt is moving more into private hands, $300 trillion worth of debt.
But when it moves into private capital, into an asset management, are there risks in that? Well, my gosh. I mean, when I'm asked that question by many central bankers and. When you raise capital standards for the banking system. And the banking system is very important because they're the only organizations that can provide leveraged capital. But because to leverage capital, there are risks. When an asset manager provides a loan,
we have one liability we don't leverage. And so the transmission. Is far safer. But could there be risks? I'm not trying to suggest or not risk. What are the foundations of BlackRock, where we began the the organization, we had a strong belief that the capital markets were going to become the engine to finance the world. And if you look at the charts, the role of banking balance sheets, which is what society wanted, has been reduced and the role of the capital markets have grown.
That's a good outcome because as society wanted to reduce societal risk in a banking system, we needed another source of raising capital. Right. And this is a blessing. Now, is there new risks when you have these big pools of money in capital markets? Unquestionably. Should there be, though? What are the risks? I mean, right now in the world, we're moving more and more private credit for the banking system to the capital markets.
The one beauty of banking. When they provided a loan to a medium and small business, they generally have a banking relationship. They generally have deposits, they're generally more patient. The question will be when you're when you're in, you know, an investment firm, are you going to provide that patience to that small and medium company that may be struggling? And there lies attention. They're not going to be as patient. And that could create a real structural issue. And if there was a deep recession where
many small and medium business are being threatened, we are going to see then a more immediate reaction. That transmission is going to be very quick, quicker than the banking system because the banks have other businesses. And if somebody in the private market is just providing a loan and there's no other interconnection, then they're going to have to do the right thing on behalf of their owners of capital as a fiduciary. They're going to have to call a loan, they're going to have to repossess property or whatever that may be. And and so I just I'm not saying that's a risk at all. What I'm trying to say.
We need to talk about what what are the dynamics? What are the changes are when there is a real ecosystem change. And so right now I don't see any risk. In fact, I think the Federal Reserve came out with a position paper saying there's actually less risk because there's less leverage in the system by do that. But let's be clear, when we're in a recession, we need more leverage.
Kappa, from the banking system. And so what society needs is a very strong banking system alongside a very strong capital markets, right? I mean, a lot of these things are new, but I think we can also learn a lot from the past. I mean, we're we're an audience with a lot of young business school students who and a lot of young investors who haven't seen five and a half percent rates before. You've seen it. You've lived through it, you've traded through higher. 1986, a quite infamous story of yours, of making a wrong way, bet on on interest rates that lost first Boston $100 million. With that experience in hand, what is
your advice to someone managing risk right now to avoid the mistakes of the past? Well, the probably that that was probably my biggest learning experience of my life. So let's start there. And I and I promised myself when we lost money and we did not understand the risks we were taking. And that was a foundation of Aladdin, which is the largest risk system in the world. And so, you know, you you can't avoid risk. In fact, those who avoid risk make no returns. Okay, That's.
But you have to be aware of the risks. You have to study risk. You have to be self aware of the risk you're taking. So I would just say it's just as bad. And actually, the year before we lost that money, we are the number one profit center for a couple of years before we might should have and we might have been foolish. But everybody loved it when you we made a lot of money because we did not understand why we were making so much money. Okay, everybody, I understand when you
lost money. Right. So the biggest lesson I ever had in my life was I want to know every moment, every day, as much as possible, the intended risks were taken. And so the foundation when we started BlackRock 35 years and 25% of our people were technology people, which was kind of unheard of in the financial services area. And now we have built the largest, most comprehensive risk system that is utilized by governments, by central banks, by insurance companies, by wealth managers, and by pension funds around the world. When you look at the landscape now of global Wall Street, and I know you have an excellent view of that.
Do you see people taking undue risk, not applying that lens that you're talking about that concerns you? Every moment there's some people taking undue risk. Some of them are wildly successful. Okay. You know, there is asymmetric risk everywhere. And the people who are wildly successful, let's be clear, it was probably an asymmetric bet and they won. The problem is, would you take an asymmetric bet? A lot of people are going to lose. And so let's be clear, the beauty of markets, there are going to be winners and losers.
Unless you're an index funds and you're doing a long thing and you're keeping it for the long term, that is not a bad thing. The question is, is a risk that is occurring within markets, within any individual, does that create a systemic risk? It's not about risk. It's about does it impinge on the economy? Does it impinge on society? But we should not be running away from risk.
We if we ran away from you know, when I'm here in Berlin, I see cranes, okay. That developers making a, you know, whatever, it's a five year risk, a planning, maybe it's a seven year risk planning building. Is there going to be tenants in that building? That's a risk. Yeah. Today, unfortunately, because permitting, I mean, when you want to build a power grid, when you want to build a pipeline, as we have, as you prepare for hydrogen or whatever they may be in a pipeline, what does that a 15 year plan because a permitting and getting this done. What.
That's the problem. Why we're not moving fast enough if we could. Short is it's not just a regulation issue. There's too much regulation in general, is that what you're saying? Regulate if we have regulation is fine. If it's can it be more immediate? No one is questioning the review process, but why can't we with new technology, with air? Why can't we get the review process in weeks instead of seven years? Why can't we move the, you know, society forward? Okay. That's what we need. And by the way, if we a review if we could move the review process down from year to week, I promise you hope will be flourishing because we're going to be able to do things fast to move society forward.
That sounds great, but we're 44 hours away right now from a US government shutdown. They've been unable to come together on that. I mean, yes. What are you missing? I don't know how you are not in favor of a shutdown. You're not listening to me. Know that? I think that is. I think a shutdown for a country that is that has $33 trillion of debt, that is not a good outcome. When you have that type of debt, what
are we telling the lenders? 40% of the US Treasury market are owned by non US entities, whether it's individuals in a bond fund, corporations, pension funds, sovereign wealth funds, central banks. That is not I mean, can you imagine you go to your bank and say, I'm not paying my mortgage? I mean, that's what we're doing. And it's not about credit. It's not about the new debt. It's about what we already what Congress has already approved.
I mean, it's it's irrational from my vantage point. It's wrong from my vantage point. At the same time, it's political. And as we know in politics today, it's it that creates the fear. And it's and it's scary. And we've seen rating agencies react. Moody's put out a note basically saying a US government shutdown would be bad for American credit. Are we are we still in a place where a default is likely? I know the shutdown is separate from that, but if that's the track we're headed on, is a default still possible for the American economy? Well, let's hope not.
That is an excellent answer. That's an excellent you know, at the same time, going back to this idea of of decarbonization in the world, we have had many funds have to pull back from ESG funds. I know you felt under pressure as well. And we talked about this, but in an election cycle, do you fear those attacks, this very specific attacks, get worse? As I said, we're hearing from more investors that are looking to put more money into decarbonization. We believe that we have to we as a world, have to rapidly find the new technologies to bring down the competitive premium. So, yes, we are going to you know, and I said I'm not using the term ESG anymore.
And the main reason why you may have a different opinion, what ESG does. Everybody has a different opinion. It is. It is. But if we want to talk about, you know, sustainability and decarbonization, I don't believe. Okay. And here's here's an amazing thing already. And so much of the tack on.
Sustainability. Decarbonization comes from what we call our red states. If you look at the most recent data where all the IRA money is going, I think it's like 60% of the money is are going to the red states. And so if you think about Texas right
now and Texas, an amazing state, it is a number one state in hydrocarbons. Everybody knows it, but it is a number one state in America for wind and solar. Right. It had 50 days of temperature around 40
degrees in a row this summer. Yeah, 50 straight days in Austin, Texas. And for the first time, they had the blackouts because of wind and solar this year. So the other angle to this, also in the middle of an election year is this is kind of the first I election when we have mass use of of artificial intelligence, the potential for misinformation to increase. Yes. Does that concern you? I think he has tremendous potential. It's going to change how we work, how we live. It also has a potential of creating real fears and problems. And so, you know, as we have heard from
the men and women who are deeply involved in it, there needs to be structure. Governments worldwide need to get in front of this. This is moving so rapidly. But let's be clear, every company, every board we talk to is aggressively focus on how can we navigate. If you overlay. Hey, I had robotics. This is what is going to transform societies very rapidly. And I think Europe, because of the demographics of Europe, we could use AI and robotics as a means to create much more productivity. I'm worried about let me just say one
one thing. I'm really worried about A.I. and robotics here. You know, historically, over the last 30, 40 years of countries that had great masses of people that were educated, that were aggressive, who are willing to work hard. The Chinese is a great example. They were able to, you know, build their
economy. If A.I. and robotics changes how we work and how we build. The countries that have huge populations. Growing population could be the most suffering nations because we are not going to have to build so many things offshore. And the countries actually that have declining demographics and are worried about it. And the narrative, what does that mean
for growth? It actually might be the true blessing. It may be those countries that will have less social pressure and the better. The great thing that I don't want to do to say in the West has to, but it'll be very clear for here in Europe. And in the world. Each year there's 1.2 million human beings die from automobiles, and every one of us, we're pretty. Immune to it.
Unless we have somebody we know or a family member we know who have been harmed or died from an automobile accident. We're just around the corner to have a driverless cars. Yeah. Yeah, we're close. But. But. But. But that driverless cars will have less
than a 5000. 5000 deaths a year. Yeah. Yeah. It's going to save so much fewer people be using this. So on sustainability issues, but we have millions of jobs will be lost. Yeah. And how do we navigate that? Yes. Okay.
That's exactly where I wanted to go. Had you went there where we're I think we're running up against a little bit of time. So be quick here. I've already accepted my job's going to the overlords later. I don't think I, I don't even think there'll be a need for CEOs anymore. But maybe that means you can.
I'll be on a beach somewhere. But how do you think about that? At BlackRock? You obviously have, you know, a robust A.I. research team. Yeah. Yeah. Do you foresee a lot of BlackRock jobs going the way of A.I.? I think we have jobs. It will be evolving and changing and
we're going to have even more dynamic jobs from that. I mean, every time you have the naysayers about technology, job loss, job loss, job loss, we have not seen that. We've seen actually job creation. But there's a transition from the time when there may be immediate job loss to a transition to a different type of job.
All I could say is, you know, this past year we added over a thousand employees and a base of 20,000. We are we see more opportunity. We're aggressively using A.I.. We have our A.I. Labs with different universities where deploying big data to get better insights in how we invest and how we think we're studying more and more things. We're using AI to understand physical climate risk. We have really advanced what we believe is models that show where physical climate risk can have a real impact. And how should how should we invest in that? How do we think about that? So we are spending most of our time focusing on how we can use this to improve society, how we can improve BlackRock, and how can we improve our relationships with our clients.
And in all the societies we work? Well, you know, we have to leave it there because it's a message of hope. Hope. Thanks, everyone so much. Thank you, everyone.