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00:00The markets have had sort of a rocky road. Can we say. So far this year as you look forward. Is there any real prospect it can record that they can recoup in the second half of the year. Probably not. Not totally. Let's start off. The market is recalibrate itself as we witness now a change in policy in the Federal Reserve. We raise short rates. We have. So we saw a recalibration of growth stocks. That's principally the majority of the down fall. And yet the index are masking some of the problems because part of the index or energy companies commodity companies that are up quite a bit. So if you look at the volatility in the market and the spread between winners and losers it's pretty broad this year. And so we've taken out a lot of those gains that we saw during the Covid years and during the two years where we were changing our lives and we were emphasizing different companies and now we're seeing the reverse impact of that. So that was one of the foundations of it. But now there's greater recognition that inflation is not transitory. It is probably with us for a number of years. And it's the type of inflation that I don't believe the Federal Reserve has the policy or the tools to do much with it right now. And I'm personally not blaming the Federal Reserve for where they are where we are right now. But I believe most of the problems we're living with today are more policy generated and supply generated demand right now in our economy by the equipment the demand that we saw pre Covid. And so we're witnessing all these supply shocks and that's creating these attended price increases. And so it's more supply driven. It's been aggravated now obviously by Covid and lockdowns in different parts of the world where we are manufacturing goods. It has been further aggravated by the Ukraine Russian war and where we have supply shock. But I have this fundamental view that much of the inflation has been generated by some very large Polish policy shifts in the United States. And I want to talk about exactly what caused it. But just before that we have Jamie Diamond talking about a hurricane potentially. Are you saying something that's significant. What's the chance of recession and not so much this year but in 2023 or even 2024. I think Jamie said one outcome could be a hard case. It may not be that sort of you know. You know I know that sounds so perfect for the media hurricane but I don't I I could see scenarios where it could be quite bad. Another another downward draft of significance. And that's going to be dependent on earnings going forward. But I could also see a scenario where we're going to be muddling along for the next year or two. Right around this level and maybe up 5 percent down 10 percent. But we're going to be in this range bound area until we have better information. I mean the one thing I will say with total certainty we're gonna be living with more uncertainty. And so with that in mind we are going to have bouts of fear which is going to bring down the markets and add a little more confidence going on forward. But we have not witnessed huge asset allocation changes by our investors. I was going to ask about that. What do you see in your funds for example. Are people buying bonds again for example in your phone. Oh my gosh. In the month of May we've had we had the biggest increase in ETF bond purchases. I mean we had 30 something billion dollars of inflows in bonds whether it's credit or all that. So you were certainly seeing a reevaluation of how far interest rates need to go upward. And so that's also one of the big trends. I mean say 30 days ago many people were five or a deep recession and now people are mitigating that. Obviously there are views that we could have a deep recession or a hurricane but that's just one of the outcomes. I mean I think there's higher probabilities of outcomes that we're going to be more range bound with a lot of volatility. Certainly there's uncertainty about exactly what happens with the Fed maybe not so much on rate increases as one of the consequences will be of a quantitative tightening which actually started this week this week. What are those consequences likely to be in your judgment. Better find new buyers. Well I mean I mean I think the marketplace does not understand the dependency of low rates was on the QE purchases. The trillions of dollars that the Federal Reserve. But let's be clear between Japan and China. They own close to two and a half trillion dollars of U.S. treasuries too. So there are big owners and big players. And obviously what will be the future clearing price in rates with with less QE and now a reversal of. Do we need to get up to a 3 percent 10 year to do to beat a lot more demand. And so much of this we're all going to have to see what what are the consequences if if the demand that we saw in intermediate treasuries it may carry on QE may not be the reversal of QE is not going to be as big a problem if we. If we have that fear that that inflation is going to be longer and higher then obviously going to have to reset all that and we're going to probably have higher rates. But I don't I'm a belief that we don't have to have much higher intermediate and long rates for our global television radio and YouTube audiences. This is a simulcasting with of course Larry think he's the chairman and CEO of BlackRock. Let's go back to something you raised Larry and that is inflation not just whether what it is but what has caused it because we've been told in the past for example from your file that he's got the tools he needs to take care of it. Right now the data don't necessarily indicate that he's taking care of it yet. Do we have the tools. Well first of all I'm a strong believer in share power and the Federal Reserve doing the right thing. I have great confidence in his abilities to assess the market. So you may know a lot more than I do so I'm not gonna be judging him. I believe the problems are inflation are not fed related as much as policy related. So I believe inflation is really based on some big macro policy changes that are that are now know that had good intentions. But the unintended consequences are more inflationary. For instance post-World War Two America's foundation of economic policy was based on consumerism. We built its entire economy post-World War 2 but by with the belief that we if more Americans can have more things then we have happy Americans and we built a whole geopolitical platform around that. And then with the fall of the Soviet Union and we had the peace dividend we were able to accelerate globalization and building things. And that's one of the fundamental reasons why we had deflationary pressures for the last 30 years. That whole movement towards supply chain navigation and lower prices I would say 10 years ago the rise. Whether you call it nationalism of the rise of this belief that we have to focus on communities that have been devastated by globalization we need to find ways of creating better jobs for more Americans. That in itself is inflationary when you move away from the cheapest price ever to another area. And so that's a fundamental change. We change our immigration policies and I'm talking about legal immigration. OK our legal immigration is that that was change about five years ago where we have reduced the amount of legal immigration. If you look at the rate of increase of immigrants legal immigrants in the United States from 2000 to 2017 and the rate that we are growing immigration in the last five years we're down to 2 million or 2 million new entrants to the United States legally. That is very inflationary when we have full employment when we have these jobs. Think about all the need for workers. What does that mean when we start implementing our infrastructure bill. When it's going to take up quite a few new jobs where those employees are going to be coming from it's going to create. Raising wages. And if you look at earnings many companies are seen rising wages are a part of their degradation of their margins. And maybe to add to that we're also going through an energy transformation globally and that can't be free. And I've I've said in my letters that that energy transition can be highly inflationary. And I've always said that that energy transition must be fair and just. And we can't be just mitigating supply. We need to be finding ways solutions. So we have a strong view on that that if we don't find a way to be working with a hydrocarbon companies with the energy company making sure that we have adequate global supply of hydrocarbons at the same time move technology to create a more deep global deep decarbonisation platform and pathway. And it's not going to be a straight line. It can be lumpy like what we're seeing now. That is also inflationary. And let's be clear the seven trillion dollars. I want to underscore a seven trillion dollars of fiscal stimulus during the Covid years is beyond any stimulus we've ever seen in fiscal policy in our history of a country. So you add all those things up. It was a foundation of inflation. And then you overlay you overlay the Russian Ukraine war and the supply of shocks and then you overlay now cove it and the lockdowns and what it's doing for supply chains. All of that is adding on. So getting back to the Federal Reserve and your question the Federal Reserve does not have tools to fix supply problems. The Federal Reserve's tools like every other central bank is to reduce demand through higher interest rates. As I said I don't think we have a demand problem. We have a supply problem. And so if they are if they believe they have to change demand that will put us into a recession. And I believe we need more time. So I'm under the belief we're going to have a two year period of time of elevated inflation. But I do believe as we reconstruct our supply chains that we find better sources of energy in the interim. The. Create more decarbonization technology. All of this in three or four years is going to work itself out. And when you talk to the energy complex that today they believe fair value for 4 for gas for oil is about 70 to 80 dollars a barrel. And so we've seen this before. We're in this transition. And I do believe within you know within a few years we'll be back to 70 80 dollar oil. Given all of that. Yeah. Is it realistic to have a 2 percent target on inflation. And we are actually encouraging the Fed in a sense to do something that will drive us into recession. Because given there are fundamental factors that push that number above 2 percent should we be really rethinking what does that mean for investors. If we're looking at a 4 percent inflation real world. Well I think we are living in a 4 4 4 percent or higher inflation world for the next two years. Investors are going to have to look beyond this period. The question is can you know if you know what will happen in three or four years. Is this going to be a short term pop. I mean you even heard one of the governors yesterday talk about you know we need to raise rates a few more times than that. I could see in a year we're going to lower rates. OK. And so you know in my opinion we need to get to a to a 2 percent level just to level set and let the data determine where it is. But I do believe because this is supply generated and policy generated not as much monetary policy generate it's hard for them. If they overshoot we'll definitely get into a recession and then they're gonna have to ease very quickly. And we still may have the supply problems. And and in all the conversations I have with business leaders around the world and I've had a couple of meetings the last few days with some significant CEOs of major international companies and they're talking about the supply problems and they're also talking about the need of labor. And they're all seeing this problem. And it's it's it's a real big issue. One of the thing that you've been outspoken on and that's environmental social and governance ESG investing and it became quite the vogue at the same time. Now it's getting a little bit of tarnish on it. For example on some of the greenwashing allegations that we saw earlier with the U.S. but also the S.E.C. going at it. What do you make of greenwashing and what can should be done about that as a problem. Well I could tell you what we've done. We've always believed this would be data dependent. And so we've been very aggressive in building out analytics and data so we could look at and review and judge companies through the lens of better understanding of how companies move forward in a decarbonising world. We all really satellite imaging and technology to understand how and how physical climate risk can impact an asset piece of real estate an office building a factory. And so we believe we cannot move forward without a proper taxonomy. And I do believe the S.E.C. has to be focused on that. But importantly let's be clear clients in Europe are actually more aggressive and moving towards sustainability not less Europe right now. Today they have the existential problem of Russian dependency of gas and oil and are moving away from that. Europe actually said we're going from from 2050 to be net zero to 2035. And so in actuality they're they're accelerating a deep decarbonisation process. At the same time Europe did change your taxonomy. A year ago the taxonomy said gas was brown magically. Now because the problem gas is green. And and David I've always said the energy transition is not brown and green. It's can be from dark brown the medium brown the medium light brown the light brown and on and on and on. We may develop new technology to leapfrog a couple of those shades but I can't see that technology yet. But let's be clear to do this transition and the problem is some environmental saying Larry we don't have time to do that. Right. And there lies the debate. Do we have time to go from dark brown the medium brown the light brown. We can all debate that. The question is do politicians have the time to allow DAX and their allies see construct that we're living in today. And what's the best way into this problem. Is it through government regulation standardization these centers or is it through things like shareholder initiatives. I mean you said you're not going to back any I think for BlackRock as you have in the past we're going to the proxy season now. Do you anticipate backing any of those. Yes. So we're almost done with proxy season. In fact the U.S. we're done and we still have a few more in Japan. What we said we're not going to be as prescriptive as last year. We're almost at the same level we were last year. I think the biggest change in proxy season this year more and more companies are volunteering information. So there were much less issues and proxies this year. We worked really well with it with companies around the world. There was only a few companies where there was a large disagreement. And so I think people once again are conflating the facts. The facts are. We said and I've always been loud on this we are not going to support the Scope 3 at this time. And the reason why I don't want to be the environmental police. I think it's wrong to ask the private sector to tell all of us the entire society. We have to move forward. And I don't I I have no problem in doing scope 1 and 2 but we've always had Scope 3 is forcing big companies banks and asset managers to be the environmental police. And I've been loud about this. I've spoken about this at COP 26. I'm against this. A lot of people got angry at me. But I believe there are some merits of strong merits. But let me be clear. The energy companies and all the attending companies they're moving and they're moving with a deep understanding. And there's not an energy. CEO does not believe we have climate risk and they all you know fairly discreet in the speed in which we could fix this. But I was with a bunch of energy companies recently and they're off trying to focus on how do we create carbon sequestering. How do we cap. How do we keep carbon capture. It's going to be a big thing and every energy companies can. How can we make hydrogen cheap enough to be a major source of energy. One last one Larry. You spent a fair amount of time talking to our leadership in Washington as well as other capitals around the world right now. I think it's fair to say the bottom Australian has got something a challenge on its hand when it comes to the economy. It's not getting a lot of credit whether it should or not. If you were to give them one piece of advice about what to do right now that could make some difference in the short to medium term what would be fixed fix immigration for legal immigration. You know and I think we all would have said that there's you know if you talk to all the business of the Business Roundtable the U.S. Chamber I mean we have to be really focused on things like that. We can build America back. But if we're gonna build America back in a non-inflationary way if we're going to grow America we're going to have to do that not just with our own. We're going to have to allow legal immigration. We could bring you know we educate over a few million young people every year that are in advanced degrees in America. And that's harder and harder for them to get a green card in America today. We need to be rethought. Rethink about the foundation of America. The foundation America was on immigration and catch and release catch and keep. All right. I know we're educating and letting him go. You know that doesn't sound like a good policy to me.

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BlackRock CEO Larry Fink on Inflation, ESG Investing

BlackRock CEO Larry Fink warns that inflation is not transitory and the Federal Reserve does not have the tools to deal with it right now. Speaking with David Westin on "Bloomberg Markets: The Close," Fink also discusses sustainability investing and his concerns about immigration. (Source: Bloomberg)

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