“I mean, the one thing I will say with total certainty is that we’re going to 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 market. The Federal Reserve does not have the tools to fix supply problems. The Federal Reserve’s tools, like every other central bank, are 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 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 elevated inflation”,- Larry Fink.
American billionaire investor and CEO of Blackrock, a multinational investment management corporation, Larry Fink, has given his outlook for the markets for the rest of 2022 and possibly 2023 and 2024.
The Fink is convinced that we are going to continue in a period of extended inflation for the rest of the year and at least two years after that. The veteran investor and businessman explains that while the Federal Reserve is putting up a good fight against inflation, the efforts may not be enough to combat the many issues that culminated in a 40-year high inflation for the world’s largest economy. He mentions the Russian-Ukrainian war, the transition to green energy, and other well-known causes of high inflation, as well as some not-so-popular ones. However, with the Jet-Bot copy trading platform, you can earn up to 2000% APY by automatically copying the greatest traders. The platform is an official broker for the Binance exchange. Copy trading is the most efficient way to make money from your cryptocurrencies in the long run. Without having to deposit dollars on the platform, you can connect your Binance account using API credentials.
According to Fink, the problem with the US economy started a while back. It would take more than a few interest rate hikes to resolve it.
‘The 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 recruit that they can recoup in the second half of the year?
I believe, no. Let’s start off by saying the market has recalibrated itself. We witnessed a change in policy in the Federal Reserve, we raised short rates, and we have seen a recalibration of growth stocks. That’s principally the majority of the downfall, and yet the index is masking some of the problems because part of the index is energy companies or 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 covet years and 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 right now. And I’m personally not blaming the Federal Reserve for 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 is equivalent to the demand that we saw pre-coup and so we’re witnessing all these supply shocks and that’s creating these intended price increases. It’s more supply-driven. It’s been aggravated now, obviously, by cove and lockdowns in different parts of the world where we are manufacturing goods. It has been further aggravated by the Ukrainian-Russian war and the 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”.
Last week, the Federal Reserve embarked on quantitative tightening to reduce its $9 trillion asset portfolio. The central bank plans to use this to supplement the interest rate hikes and support its fight against inflation. Though the exact effects of such measures on the financial markets are still widely contested, several market analysts are convinced that more trouble may lie ahead for the stock market. While commenting on how all of this could affect the markets, they say that we may have to find new buyers. The billionaire investor might have said this as a joke, but the US government is essentially going from being the market’s biggest buyer to its biggest seller and is putting almost $9 trillion up for sale.
Here is Fink’s explanation of how all these will impact the markets.
I mean that I think the marketplace does not understand the dependency of low rates on the quantitative purchases of trillions of dollars at the Federal Reserve. But let’s all be clear between Japan and China. They own, you know, 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 at these rates with less QE and now reversal? Do we need to get up to a 3% ten-year to meet a lot more demand? So much of this, we’re all going to have to see what the consequences are. If the demand that we saw in intermediate treasuries carries on, it may not be the reversal of QE. It’s not going to be as big of a problem if we don’t have that fear that inflation is going to be higher and longer. Then obviously we’re going to have to reset all that and we’re going to probably have higher rates, but I don’t believe that we don’t have to have much higher intermediate and long-term rates. I believe the problems of inflation are not Fed related as much as policy related.
So i believe, inflation is really based on some big macro policy changes that were, that are now, you know, that had good intentions. But the unintended consequences are more inflationary. For instance, post-World War II America’s foundation of economic policy was based on consumerism. We built this entire economy post-World War II with the belief that if more Americans could have more things, then we would have happy Americans, and we built a whole geopolitical platform around that. We changed our immigration policies, and I’m talking about legal immigration, okay, and our legal immigration. That was changed about five years ago, when we reduced the amount of legal immigration. If you look at the rate of increase of legal immigrants in the United States from 2000 to 2017 and the rate that we have been growing immigration in the last five years, we’re down 2 million. When there are two 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? It’s going to take quite a few new jobs where those employees are going to be coming from. It’s going to create rising wages. If you look at earnings, many companies are saying 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.
I’ve said in my letters that energy transitions can be highly inflationary. I’ve always said that energy transitions must be fair and just, and we can’t just mitigate supply. We need to be finding ways to solution this. We have a strong view that if we don’t find a way to work with the hydrocarbon companies, and the energy companies to make sure that we have an adequate global supply of hydrocarbons at the same time. We will move technology to create a more global decarbonisation platform and pathway. And it’s not going to be a straight line; it’s going to be lumpy like what we’re seeing now that is also inflationary. And let’s be clear, the $7 trillion, I want to underscore, $7 trillion of fiscal stimulus during the last five years, is beyond any stimulus we’ve ever seen in fiscal policy in our history as 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 shocks, and then you overlay now, covet 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 the tools to fix supply problems. The Federal Reserve’s tools, like every other central bank, are 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 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 elevated inflation, but I believe as we reconstruct our supply chains, we find better sources of energy on the internet, as we create more decarbonisation technology, all of this in three or four years is going to work itself out.’
Fiscal stimulus worth $7 trillion a global lockdown supply chain crisis, reckless government policies and now a war that threatens to cause a global food crisis. These are the challenges that the economy and the markets have had to battle in the last two years. The fiscal stimulus might have been for a good cause at the time, but there is no debate that it has also negatively impacted the economy and caused some of what we are witnessing today. What do you think about Larry Fink’s interview? Is there any chance that the markets will recover some losses in the other half of the year, or do you expect this to last much longer?
[This article is a transcription of a video made by Savvy Finance]
Original video: https://youtu.be/w9O-tl7zMK8]