Larry Fink, Rick Rieder, and Jim Lee Walk Into a Room

Rick Rieder is the CIO of Global Fixed Income for Blackrock. He’s not the OG Bond King, but in my opinion he’s today’s Bond King. It felt like he was just riffing, but the level of detail he provided as he laid out his view of the state of the world was incredible. Some of the points and comments he made:

• CPI was hotter than expected in January, but he does expect February inflation to decline as the annual contract renewals that happen in January are digested and typically lagging shelter inflation data continues to decline.
• The Fed is not cutting rates anytime this year.
• The biggest risk to the economy is “the debt is too damn big!” Trump will probably pursue a global tariff to help offset that debt because the US “needs the money.” Something has to change because most spending that he and Elon will be able to cut in 10 years is $1.5T. But, the extension of the 2018 TCJA (Tax Cuts and Jobs Act) is going to reduce revenue by $4.25T. The debt is a problem, but the global tariff is not since it’s a closed economy. It will add some inflation to some goods, but the disinflationary trend of tech and AI will offset elsewhere.
• “Bonds are not a hedge anymore.” Quite a statement from a bond guy. What he means is the correlation between stocks and bonds has been positive. Stocks up, bonds up. Stocks down, bonds down. Couple that with an aside he slipped in there that “the risk free rate isn’t risk free anymore” and the room was squirming. He clarified that the traditional allocation of the S&P plus the Bloomberg Agg positively correlates. That doesn’t mean that other bonds wouldn’t provide an equity hedge. Specifically, buying short term debt (2-3 years) that pays a higher interest rate than long term debt and is generally less volatile to begin with. Notably, he said he doesn’t see a lot of reason to own long treasuries and is buying as much 2-3 year European debt as they will make.
• “One way to own equities is to own less of them.” Advisors and portfolio managers sometimes overcomplicate portfolio construction. I really liked the simplicity of this. If you’re worried, reduce your exposure. Should you be worried about a US recession or stock selloff? He didn’t think so. He is double digit on the US market for the year. There have only been 2 recessions in Services in 75 years – Pandemic and 2008-2009 Global Financial Crisis. The US economy is now 70% Services. It’s not the Manufacturing economy that was the 1950’s or China today. It’s likely that cyclical recessions don’t happen in the US anymore. It would require a global event.
• What about valuations? The Mag7 makes more money with the Fed raises rates because they have no debt and hold tons of cash. They have tons of free cash flow and tons of buybacks. There’s a perpetual bid internally for their stock. 
• The dollar? He think gold is going up because of the currency problem. He thinks Bitcoin is a scarce asset and will go up.
• He closed saying that he thinks the new administration will do some creative stuff. He expects re-regulation broadly, but particularly in banking, will be pro growth and increase M&A activity. AI will be deflationary.

Jim Lee, the Founder & CEO of the Texas Stock Exchange took the stage next. I’ve followed the development of the Texas Stock Exchange from idea to (almost) implementation. His updates:

• Texas is going to implement a constitutional amendment that bars taxes levied on trading of the exchange. This is the competitive advantage to the jurisdictions where the major exchanges operate.
• Funny enough, the NYSE announced that morning they were moving to Texas. Interesting.
• He expects SEC approval in Q3 of this year, with trading commencing early 2026, and new listing towards the end of next year.
• Their goal is to reduce the cost to go and remain public. Over the last 25 years, the number of US public companies has been reduced by 42%. Globally, public companies have grown 40%. That is an opportunity.

Normally, by the end of an all-day meeting I’m dragging. Not when you’ve got the head of a $12T asset manager about to speak. Larry is always well spoken. Always has opinions, but always rooted in reason. Enjoy:

• Around the world. Europe is a mess because it’s not interconnected. India remains an opportunity and Blackrock is helping assist in building their capital markets to create a greater chance at success.
• He made direct comments about the perception that Blackrock is against hydrocarbon energy. They manage the pension funds for Exxon and Chevron, but his directive across the firm is “do not divest from any energy companies.” Their position is supportive of all types of energy sources and creation. “We don’t have news anymore. We have opinions. There hasn’t been any moment that Blackrock hasn’t been fully committed to building economic vitality across the country.” 
• His greatest fear in the capital markets is Populism. “Populism won’t create economic activity, it will pause America.”
• Rieder talked about Elon taking him to “see the robots.” Larry’s view is robotics and AI are incredibly deflationary. Foxconn said with the new robots with AI features, in the next 12 months they will be reducing headcount from 1M workers to 850K, and the following year by another 150k workers. Robotics will help on-shore manufacturing at expense of the near-shoring in Mexico, for example, but how many jobs will that scenario really create if they are done by robots? “Jobs are not the problem, high quality jobs are the problem.”
• The debt came back into view. “We are the only country that can have the type of deficits that we have because the dollar is the #1 store of value currency in the world today.” And this very logical train of thought around the idea of a strategic Bitcoin reserve: “If we tell the world that BTC is a good asset for our national reserve, why would anyone want to own dollars?” Fire.

Discuss!

-RA