Larry Fink, Co-Founder, Chairman and CEO of BlackRock, Inc. (NYSE:BLK), joined Bloomberg Television’s Erik Schatzker and Stephanie Ruhle today to discuss volatility in global financial markets, the economies of the U.S. and China, and shareholder activism.
Fink called the stock market decline a “good old-fashioned correction.” He also shared thoughts on China: “I’m surprised the market is upset the Chinese economy has slowed down in the short run… I don’t think it’s as problematic as some people believe.”
Full Video for viewing and embedding:
“Old-Fashioned Correction” Clip:
ERIK SCHATZKER: He’s the co-founder, chairman and CEO of BlackRock, Inc. (NYSE:BLK), the world’s largest asset manager. Larry, I just have to remind everybody that BlackRock oversees now, what, $4.5 trillion?
LARRY FINK: $4.3 trillion.
SCHATZKER: $4.3 trillion. It’s a staggering figure. I just love to talk about it because it is so –
FINK: I’ll let you do it because I never talk about it.
SCHATZKER: I know you don’t because you know –
STEPHANIE RUHLE: It’s Austin Powers like.
SCHATZKER: He doesn’t need to talk about it.
RUHLE: When I hear the number it’s Austin Powers like it’s so big.
SCHATZKER: Larry, let’s talk for a moment of what’s happening in the markets today, the past couple of weeks. The message you delivered about volatility was a couple of weeks ago already. Does it feel to you like we’re beginning to bottom out? Is this just an old-fashioned correction or something worse?
FINK: It’s an old-fashioned correction. We went so far. If I asked you and I asked everybody in January of ’13 how much would the opening markets rally, we would have been really happy at ten percent. And really the S&P up went north of twenty, thirty percent.
SCHATZKER: Thirty almost.
FINK: Yes. And so we’ve come a long ways. And we just need to recalibrate ourselves. Now there has been more disappointing news. And my message in Davos is we can’t rely on central bank behavior. We had the benefit for the last five years of coordinated central bank behavior that really stabilized the marketplace and gave you ample room to invest over a longer period of time. Central bank behavior is changing. They’ve done a lot of the work. The next round of growth is going to be coming from governmental policy.
So we are dependent on abenomics in Japan. Are they going to do the reforms? Are we – we’re dependent on Chinese to get their reforms in order. We are dependent on the EU working towards reforms. And certainly we’re dependent here. So the problem is politicians are not as systematic as central bankers. They were – they generally respond to crises.
RUHLE: But the problem is politicians, period.
SCHATZKER: But dependent on policy, yes. But as Stephanie likes to point out, we may be dependent on policy, but for the moment we’re hooked on heroin.
FINK: And the heroin is what?
SCHATZKER: Quantitative easing.
FINK: No I don’t – I don’t – I wouldn’t call it that far.
RUHLE: Think about how many investors in the last couple years have said to us fundamentally they see huge problems in the market, but when the S&P ran last year they all bought it.
FINK: So I think we have not seen any changes long, our long-term investors or institutional investors. We have not seen any behavior change. In fact we –
SCHATZKER: Really? So what we see happening this is really that has –
FINK: This is the unwinding of large hedge fund behavior. They really – the biggest problem, and I said this in Davos too, what I see of the problem is there are so many correlated trades worldwide. Everybody was long the Nikkei, short the yen. Everyone had those trades on and those trades have been very harmful in the first five and half weeks of the year. Most hedge funds are down five-ish percent who had those trades on. And but most importantly, some time when I last was here I talked about we could see a ten percent correction.
SCHATZKER: You did.
FINK: If you look at where long treasuries have gone from January 1st to now and where the S&P has gone, we have had a 12 percent relative value correction, 12 percent in six weeks, long bonds up –
SCHATZKER: Doesn’t happen that often.
FINK: No, long bonds up about six percent and S&P is down approximately six percent. So that’s a huge correction. So I look at this as good old-fashioned correction. There may be more in it, but we have not seen behavior change other than an unwind of what I would say the correlated hedge fund trade. We have seen some fear in the retail side. They’re unwinding some of their positions so you’ve seen some outflows in mutual funds and ETFs, but I would tell you we’re having as much dialogue today about investing more in emerging markets than we did two months ago.
RUHLE: Do you think this market correction or turmoil is going to affect the taper decision?
FINK: No, shouldn’t. I don’t see why it would. I do believe the U.S. economy is one of the highlights of the global world today, whether you think we’re going to grow at two and half or three and a half I think that’s a big boundary, but let’s center in three percent. We are growing at a faster rate than we did last year. And so I think they have room to unwind.
Keep in mind last – the last two years we had a lot of fiscal drag because of the sequester. That has been behind us. So we have ample room for growth. We don’t have the fiscal drag. We have a strong banking community. We have a – we have a rising economy due to our energy situation. So there are many positive things here. And so I think if it’s not now I don’t know how the Fed would unwind this. So I think they have room to unwind.
SCHATZKER: What if the market drops another five points and we are in a bona fide ten percent correction?
FINK: It depends on why. So if we saw a five percent correction because Friday’s numbers was another 75,000 job growth, I think they would pause, but if we saw a five percent correction at the same time we saw 175,000 job created, I think they’re not going to pause. I think it is going to be data dependent. Chairman Bernanke has already said it’s data dependent. I am sure Chairman Yellen will be saying the same thing when she speaks.
RUHLE: Larry, you said in the first five weeks of the year it seems like many hedge funds are down around five percent. In 2013 a ton of hedge funds had a horrible year. Do you think we’re going to see consolidation?
FINK: Well yes. There’s already been consolidation. And they’re going to continue to do it, but you’re seeing some very successful hedge funds doing quite well. And you’re seeing some of the other ones that are starting to struggle. So I don’t find that to be a problem. That’s the evolution in the marketplace. Winners take on more share. You see that in the mutual