Financial Planning & Investment Management | BlackRock

Transcript –

Larry Fink on the Russia-Ukraine conflict

SAMARA COHEN : welcome to The Bid, where we break down what ‘s happening in the markets and explore the forces changing investing. I ‘m samara Cohen, Chief Investment Officer for ETFs and Index Investments at BlackRock and your host today. Over the past few weeks, the russian invasion of Ukraine has caused a huge humanist issue and sent ripple effects across the ball-shaped economy. On this sequence, we ‘re joined by our Co-founder, Chairman, and CEO of BlackRock, Larry Fink, to get his position on what ‘s happening and how it ‘s affecting the ball-shaped markets. Please keep in take care, we ‘re recording this on Friday, March 11, as the conflict enters its third gear workweek. Larry, welcome back to The Bid.

LARRY FINK : thank you, Samara. It ‘s great to be here .
SAMARA COHEN : Larry, the global has changed dramatically over the past two weeks. And although the global has unfortunately seen conflict and wars break out over the past 20 years, this one feels different. Why do you think that is ?
LARRY FINK : well, we ‘ve actually had many wars in the worldly concern over the last 20 years, in the last 30 years. But this is different because we have a principal nuclear exponent invading a neighbor. And in accession, this nuclear office, Russia, it actually invoked the words ‘nuclear ‘ as an dysphemistic moment. And it was motiveless. We were witnessing the hideous actions of a military war. We are witnessing each moment of the tragedies that are occurring throughout Ukraine, the human-centered calamity of 2 and 1/2 million migrants, in which half of them now are children, the displacement of millions of people .
It ‘s threatening the soul of the global in so many ways because the world benefited, credibly ampere a lot as any major geopolitical issue, when the Soviet Union broke aside. And it was the ending of the Cold War. And we were able to have this enormous peace dividend. So the peace dividend is over .
Over the last 30 leftover years now corporations worldwide expanded geopolitically and expanded in different geographies. We built this unharmed foundation of globalization. We built these ball-shaped capital markets. But the initiation of how we constructed the global model is immediately over. It ‘s broken down. nowadays we ‘re trying to reassess what does it mean for the future. And we do n’t have enough answers however because we do n’t know the result. How do we move forward as companies, as countries. I ‘ve been on the calls with many CEOs today and yesterday and every day since the invasion, and I ‘m hearing from reverence to concern, but most universally is this doubt. What does it mean ? What does it mean for globalization ?
SAMARA COHEN : Let ‘s talk a small moment more about your orient on global capital markets. Russia was given access to global das kapital markets as the world emerged from the Cold War. And now Russia is pursuing a traditional war, but the response of the capital markets is anything but traditional. So what are your thoughts on the markets ?
LARRY FINK : well, as I wrote in my chief executive officer letter earlier this year, I stated that access to the global capital markets is a privilege. It is not a correct. And I think this has been exemplified by the behaviors of the private sector. We ‘ve created in two weeks an enormous change. And we ‘re witnessing now that an economic war can be a buttery as any imagination could ever achieve. This economic war is not something that one should take lightly. It changes the future of Russia. And I do n’t know how we reverse this. It is in many ways a actually crucial statement to see how corporations are in truth embracing stakeholder capitalism here because sol many companies have been bombarded by questions by their employees, by their clients, by different customers worldwide. What are you doing about this ? And the behaviors of the private sector have been just as across-the-board, impactful as the governmental sanctions .
therefore when you think about it from the government sanctions to the impact by the individual sector of the desertion or cessation of business in Russia, it truly does show the baron of the capital markets. And now denying capital, it shows the baron of, I would say, capitalism. We are going to expect to see in every first quarter solution by many companies that they ‘re going to have an damage charge from the abandonment of Russia. It ‘s a erstwhile thing. So it ‘s recalibrating a batch of companies. I applaud the fortitude of management teams of companies and boards in these actions. I think this fair very shows the power of one capitalism, but the ability of the global capital markets, but importantly, the power of capitalism focusing on their stakeholders .
SAMARA COHEN : This is a global economic war. But the independent theater of war is actually happening in Europe. What will be the shock for ball-shaped growth, but more specifically european economic growth ?
LARRY FINK : What you ‘re seeing is the economic reply that is thus immediate and so quick. And I think it ‘s going to be so impactful. And I do believe it is going to — I think this is a reminder to every country, as it is a admonisher of every company, access to capital is a privilege, not a veracious .
In the unretentive run, it ‘s obviously quite impactful on the negative side. Consumers are going to be feeling the pain of rising energy costs and rising food costs. But ultimately, I am optimistic about what it means for Europe. Samara, post-invasion, we ‘ve seen a sum transfer in the behavior throughout Europe. The union of Europe feels more real right now than it did earlier. Germany has announced they ‘re going to raise their defense spend to 2 % of GDP. This is actually what the Americans asked for a few years ago under President Trump. Hopefully other parts of Europe will be advancing. They ‘re moving towards more renewables, specially in parts of Italy where the sun is pretty prevailing there. And then all of this means more fiscal outgo, more deficit spend. And I look at this as a very net incontrovertible. And therefore, in the short ladder, we are going to have slowing global economies. But in the long run, it ‘s going to be offset by rising fiscal stimulation again, as we witnessed during the COVID years, how much fiscal stimulation we saw to stabilize the global economy after a match shocks in the economy and veto GDP .
I think we have a act of years of recalibrating what this all means. But the Europeans very have been quite aggressive in reasserting themselves to be less reliant on Russia. They ‘re reasserting themselves through fiscal stimulation. And I think you ‘re going to see monetary policy be much more hushed than we thought anterior to the invasion .
SAMARA COHEN : Larry, you mentioned the shock for companies in the secret sector who are taking actions beyond the government sanctions. How do you think what ‘s unfolding immediately adds to the preexistent concerns over provide chain issues ? Do you think that there ‘s a growing concern to watch around supply chains ?

LARRY FINK : I think this is going to be the biggest question that is going to be discussed, the biggest write out that we ‘re going to be discussing. therefore, we are refocusing on our dependencies in Russia. I think the hale world is focusing on dependencies now, the dependencies to China, as a manufacture and fabrication. I besides believe the worldly concern ‘s refocusing on the dependencies on the US dollar. And I ‘ve heard from a pair of finance ministers, should the global be this subject on one currentness ? And sol I actually believe we are going to reassess everything. A fortune of this is more of an anti-global position .
But let ‘s get back to the supply chain. I think as companies reassess their dependencies, they ‘re going to be saying that possibly we are besides subject on one position. possibly we ‘re besides dependent on China or something else. And they ‘re going to be reanalyzing their supply chain. I talked to one chief executive officer today that has systematically been mitigating their dependencies on China. And they ‘ve been moving more and more supply of chains into Mexico. And he said, now our biggest source of manufacture is Mexico than China. So we ‘re seeing this unharmed recalibration. And this recalibration is going to truly determine how we go forward .
SAMARA COHEN : Larry, I think related to supply chains, you used the bible deglobalization a couple of minutes ago. Can you say a little spot more about that path and what you mean ?
LARRY FINK : well, as I said, with a peace dividend of the end of the Cold War, we were able to build a ball-shaped network. And globalization was the key, I would say economic policies, that people expanded and built. And globalization actually had many positive benefits. right now it ‘s not being discussed. More human beings were lifted out of poverty over the last 32 years than any time period of clock time ever. And that was because of globalization .
We learned from COVID that provide chains were possibly merely full in identical efficient times. We learned that many supply chains would not function adenine well when people were — when COVID hit a country and they had lockdowns and they could not have workers at a factory or in the ship components, and we witnessed huge supply chain issues. now much of the supply chain issues we witnessed was as people were more in distant work, more and more people changed their pulmonary tuberculosis patterns away from services. We traveled less. We went to fewer restaurants during that menstruation of time. But we spent our money on das kapital goods. And so much of the supply chain issues was we miscalculated how much demand there was going to be on indeed many products .
I think immediately with looking at the dependencies of Russia, focusing on the dependencies on other parts of the world, whether it ‘s at China or somewhere else, I think there ‘s another reappraisal of the issue chains. And does it mean a deglobalization ? credibly it does. When you talk about onshoring factories or nearshoring factories, that in itself is a deglobalizing process. And so, because of the resurrect of nationalism, the resurrect of geopolitical tensions, and the necessitate to have better supply chains, it means everybody ‘s bringing them closer to where demand is. And that is a big reversal in how businesses built their platforms and businesses. And so a bunch of that is being reassessed. And it does on the margin mean less globalization .
SAMARA COHEN : Does this rewire of the global economy that you ‘re describing impact your judgment or the CEOs and policymakers that you ‘re talking to, their judgment of inflationary pressures hera and how businesses and consumers will navigate them ?
LARRY FINK : You know, Samara, post-World-War-II United States economic policy was based on consumerism. It was the foundation of — and that was coupled with globalization. And then, we were able to maybe move manufacture somewhere where we were able to provide cheaper products, more products to more Americans. I would say erstwhile in the last 10 years that whole initiation of providing the cheapest products to more Americans has now been reconsidered. Jobs are now considered to be more significant than cheaper prices. I think that is inflationary by itself .
I ‘ve always said, if we are going to move to a decarbonize world without newly technology that is highly inflationary, we are now witnessing that today. This is why I ‘ve always been saying a conversion from hydrocarbons to something more sustainable has to be done in a fair and merely way. And quite honestly, even before the russian invasion, many countries were focusing on supply extenuation versus demand extenuation. And so, we were witnessing rising energy prices even before the russian invasion. All of these are more incrementally inflationary, and what ‘s much more inflationary would be if one has to now re-footprint provision chains possibly to a higher monetary value area, but it ‘s nearer, with more consistency, with more certainty. All of this leads to higher inflation and that ’ s one of my bigger worries today .
now, in the long run, though, as we build out these pleonastic supply chains, as we become less dependant, in theory this actually, at the back end, could be deflationary. And a supply jolt that we ‘re witnessing is hard for any central savings bank to mitigate. therefore if you believe that much of the inflation is because of supply shock, you ‘re going to credibly expect fewer central banks tightening, flush in this inflationary environment because that supply shock, ultimately, can be worked out. Maybe it ‘s three years, or four years, or five years, but it can be worked out .
And let ‘s be clear, higher energy prices accelerates the demand for decarbonization, accelerates the necessitate for EV vehicles. And so that ‘s a manner you mitigate long-run demand through that process. And thus all of this is equalizing. We may be in a time period of clock of higher ostentation that is going to be very damaging for those who least could afford it. Higher inflation is destructive for the stallion issue global. This is why I have always said, it has to be carnival and merely. And right now we ‘re not in a fair and merely period of time .
SAMARA COHEN : Larry, thank you so much for your time and for your insights and for joining us today on The Bid .
LARRY FINK : Well, I want to thank everybody for listening. These are atrocious times, what we ‘re witnessing in these humanitarian disasters. But we all should be aspirant that as human beings we do find solutions. And this has not abated my long-run optimism, that we find solutions, we mitigate problems. And through that process, we have a better future.

SAMARA COHEN : thank you, Larry .
LARRY FINK : Thanks, Samara .

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