Steve Schwarzman, CEO, Blackstone, joined hosts Stephanie Ruhle and David Westin for the debut of Bloomberg TV’s new flagship morning program, Bloomberg <GO>. Schwarzman discussed the Federal Reserve, Volkswagen in the wake of the pollution controls scandal,2016, and Ohio State Governor John Kasich.
On whether there will be a rate hike from the Federal Reserve this year, Schwarzman said: “I don’t care. It doesn’t really make much of a difference. Interest rate hikes of 25% that people have been talking about for 2-1/2 years, I mean really. If you haven’t discounted a lot of this stuff, they’ve got the issue that raising interest rates is probably a good thing. However their problem is that because the US currency has appreciated against almost everyone in the world, in effect, we’ve had the impact of an interest rate increase already through slowing of the economy.”
On whether the Volkswagen emissions scandal could just threaten the company’s very existence, Schwarzman said: “Doesn’t seem to me that’s the way it will end up working out. This is obviously a heroic problem, but this is a company that’s got amazing consumer support. Not this week. Not this month. But ongoing, they make terrific products. And this will work its way through the legal system.”
On the importance of the jobs report as an indicator of where we’re going in our economy or globally, Schwarzman said: “It’s important to the extent it’s showing a trend. The US economy has hit a little bit a slowdown. We can see it in some of our businesses and it was stronger at the beginning of the year.”
On 2016 and Governor John Kasich, Schwarzman said: “I like John. He’s done a remarkable job in Ohio. He won his last election by 30 points. I mean this is like, I’ve never heard anything like that. And he’s quite experienced and he’s a good person…He’s a genuine person.”
Schwarzman Doesn’t Care If Fed Hikes Rates
Schwarzman: I Like John Kasich
Can VW Scandal Really Threaten Company’s Existence
How China Slowdown is Dramatically Impacting the World
Schwarzman: U.S. Has Hit Little Bit of Slowdown
Bloomberg <GO> airs weekdays from 7-10am ET on Bloomberg Television and is also available for free on livestream: http://www.bloomberg.com/live.
The show offers intelligent, useful conversation for the busy, successful professional and draws upon the vast resources of Bloomberg—news, intelligence, data, analytics, reporters, experts, influencers, and decision-makers–from every corner of the globe.
DAVID WESTIN: I want to come back to Steve Schwarzman and let’s take this all the way back to Friday. It seems like forever ago.
STEPHANIE RUHLE: All the way back.
WESTIN: All the way back to Friday. Jobs reports came out that were disappointing I think it’s fair to say. I think it was 142,000 something like that. And also downward revisions on the prior two months.
STEPHEN SCHWARZMAN: Right.
WESTIN: How important is that as an indicator of where we’re going in our economy or globally? Or is it important at all?
SCHWARZMAN: Well, it’s important to the extent it’s showing a trend. The US economy has hit a little bit a slowdown. We can see it in some of our businesses and it was stronger at the beginning of the year. But that should not be a surprise given all the things that have happened over the last few months with you know dramatic changes in currency values. Harder for Americans to export, all kinds of other issues that we’re facing with China. Commodities generally going down. It all truncated into a very narrow window.
And the fact that these things happened over 6 weeks or 8 weeks it was like more than everybody could absorb. And the nature of that is that people lose a little confidence and they wait to see what happens. And so I’m more optimistic that things will go on a bit more of a positive trend. Because how much of this stuff can you take all at once?
RUHLE: The credit markets though aren’t giving you pause? When you look at credit in the last few weeks it has frozen up. Double (INAUDIBLE) index going from 6-7.5%. The new issue market seems like it’s disappearing. Deals that were clearing at 6% are now above 10% in the blink of an eye.
SCHWARZMAN: But that’s sort of an interesting thing. People are fixated on what the Fed is going to do. In fact it’s already happened. Certainly in the lower rated credit area there’s less credit. And the cost of it is much higher whether it’s leveraged bank loans or junk bonds or other access to capital. Even in real estate the access hasn’t really been affected as much. But the interest rates are up a bit. Not nearly as much as in the corporate world.
RUHLE: But now what does that mean to you? As you look at what LBOs are going to look like going forward, seeing that credit has like just frozen, do you change your view in any way?
SCHWARZMAN: Well, what happens is this is not abnormal. You know we’ve lived through many cycles–
RUHLE: We haven’t seen this in a, we can’t say in the last 10 years how many times have you seen credit make a move this drastic, this quickly?
SCHWARZMAN: Well, this has been a big move in terms of interest rates on the corporate side. Not so much on the real estate side. And the answer is, several times.
WESTIN: And does it create opportunities for you at Blackstone in the sense that when the credit price goes up the price of the property goes down? So there may be companies you could buy?
SCHWARZMAN: That’s why you’re seeing the linkage with the stock market right? Everything’s gotten cheaper because credit has gotten much more expensive among other reasons.
WESTIN: But more globally, I mean, you pointed in this direction. Do you think that the global economy is growing at this point at a healthy rate? Or do you think it’s all slowed down? How does that affect your business decisions?
SCHWARZMAN: Well, the economy clearly is growing on a global basis. If you start in the US we’re probably somewhere in the 2s, Europe is growing around 1.5. And together that’s 45% of the world’s GDP. So that’s a pretty good solid amount of growth.
China which is somewhere around 13% of global GDP is slowing down but if you saw the World Bank statistics today that area of the world they still think is going to grow at like 6.5. The lowest numbers I’ve heard in China are somewhere around 6. That could be wrong but–
WESTIN: Do you believe those numbers?
SCHWARZMAN: I think there are no numbers that actually can be believed. Not because people are telling you untruth, they may not have those numbers themselves. And so you end up looking at official numbers and then you end up looking at anecdotal things.
For example in China we own a lot of shopping malls for middle class people, not for the high end fashion malls. And we’re up 15% this year.
RUHLE: How? It seems like that middle class, that consumer is getting hurt so drastically.
SCHWARZMAN: Well no–
RUHLE: Because he has the only right data.
SCHWARZMAN: It says