WHEN: Today, Friday, April 12, 2024
WHERE: CNBC's "Squawk on the Street"
Following is the unofficial transcript of a CNBC interview with BlackRock Chairman & CEO Larry Fink on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET) today, Friday, April 12. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/04/12/blackrock-ceo-larry-fink-ai-cant-happen-without-a-huge-investment-in-infrastructure.html.
All references must be sourced to CNBC.
DAVID FABER: Alright. I got something else that -- well, it's down now, BlackRock. Larry Fink is sitting next to me, of course, as promised. The–
LARRY FINK: No, it's up.
FABER: Now, it's up. Alright. It's moving around a lot. But we're taking a look at shares of Blackrock, of course. The company did have an earnings beat this morning. Assets under management hit a record. They're now $10.5 trillion. And as you probably guessed, given you already saw him, joining us exclusively is BlackRock's chairman and CEO, Larry Fink. Nice to have you here.
FINK: David, good to be here -- Sara, Mike.
FABER: I hope you can deal with all this noise.
FINK: A lot of noise, yeah.
FABER: But nice to have an IPO, right? Never say that's a bad thing.
FINK: IPOs are always a good thing. Brings more capital into the market, expands the capital markets.
FABER: Yeah. Actually, I might want to get to that with you, but let's start off with the earnings themselves.
FINK: Right.
FABER: You know, on the call, you're talking about the uncertain backdrop, of course, but it doesn't mean there's a lack of opportunities. You had decent inflows this quarter, interestingly more into fixed income perhaps than other areas, although maybe that was expected.
FINK: I -- I think in the -- in a period of so much uncertainty, growing fear of more anxiety throughout the world, people are staying a little close, and you know, we've had $9 trillion of money now into money market funds, record levels. And some of that money is going into fixed income. But the alternative, though, if you were fully invested in the equity market, you would have made 25 percent return. So -- and this is what I try to talk about. It's not about the moment. Yes, there's uncertainty, but over the long run, do you believe in American-style capitalism? Do you believe in the markets? And, over the long run, I do believe our markets are going to continue to be driving excess returns above what you can earn in a money market fund.
FABER: Right. And on the call, you talked about what you believe are still great opportunities, your words, for investors across a number of structural trends. I might expect that those include the likes of, what, AI? What else?
FINK: Well, the combination -- AI cannot truly happen unless there's a huge investment in infrastructure. The amount of energy that is required for AI or -- is enormous, and the amount of power generation. We will run out of electricity if we are going to fully adapt a full AI world. And so, the need to build on -- this is all going to stimulate our economy, by the way, to build out a more AI and -- which at the backside is that means building out more electricity, power.
FABER: For the datacenters, obviously.
FINK: Datacenters and all that.
FABER: They consume so much electricity.
FINK: And we're going to have to be building out, you know, tens and tens of giga -- you know, gigawatts. Not like -- not megawatts, gigawatts, and that's -- we're talking trillions of dollars of investing. And so, the opportunity is enormous in the coming years, and this is one of the fundamental reasons why I believe the United States is leading this, but let's be clear. I'm talking to political leaders in other countries, and their desire to build out datacenters, AI, technology at the same time de-carbonization. So this is why I remain to be a little more constructive, why I believe there's elevated inflation in the world, and I think all of this is playing out. But back to our earnings, you know, we had a record amount of assets, $10.5 trillion.
FABER: Yes.
FINK: All of it's our clients' money. More than 50 percent of it is retirement. And we saw flows across the board, worldwide. We had active flows where still, in many cases, active outflows are occurring in the industry. We had inflows. And so, the resiliency of our business is only accelerating. For the first time in a long time, I noted our pipeline has never been stronger of noted wins that are going to fund in the future. And so, what we see is acceleration in our business model.
SARA EISEN: I wanted to ask you about inflation, because I gave you credit earlier for being, I think, one of the first and early ones last year to say, this is going to be sticky. Inflation is going to stick around. And we saw it come down at the end of last year, but now, this year, three in a row of hotter reports.
FINK: But, Sara, it never came down to the target of the—
EISEN: No.
FINK: Federal Reserve's desires—
EISEN: No, I'm saying, you've been right now to call—
FABER: Well, not yet, not yet. Not never.
FINK: Even when everyone became enthusiastic, it never got to 2.
EISEN: And you don't see it getting there—
FINK: No.
EISEN: For how long?
FINK: I think 2 is a hard number. We have restructured how we frame our economic policy. We have a trillion dollars of fiscal stimulus in the Chips Act, the Infrastructure Act, and the IRA. We have very poor legal immigration policies that have restricted, and that is all inflationary in jobs. And then, the bigger issue is how we think about how we spend our incremental dollars as -- we're spending a lot more money on services. So, if you think about where -- service inflation is really the main culprit of high, elevated inflation. We have an aging housing stock in America. So, our homes have more frequency of leaks from older roofs. We have more frequency of busted pipes. This is now translating into a higher elevated insurance cost. Our behavior driving -- we have more frequency of accidents than any time, and that means we have elevated car insurance. So, if you look at the most recent inflation numbers, so much of it was insurance, and then if you overlay what I talked about in terms of my -- in my chairman's letter about elongation of life, the cost of elongation of life is going up. And long-term health care costs are going up. All those numbers were shown in the inflation number. So, central banks have a harder time arresting service inflation. A great statistic that my good friend, Rick Rieder, uses all the time, the cost of a pair of Nikes or Adidas is about the same price for 30 years. So, you'd say product prices are unchanged. But the cost of going to a sporting event, the cost of going to a rock concert, to see Taylor Swift, is so elevated, six, seven times. And so, it's a sign that -- okay, prices on goods are pretty stable. But what we're willing to pay to go to a restaurant, to go to a sporting event has been so elevated.
EISEN: So, do you think the Fed is going to be able to cut rates?
FINK: I -- look, when everybody said we're going to have six cuts earlier this year, some noted economists, I said, maybe two. And I don't -- look –
EISEN: Now you're saying maybe two?
FINK: I'm still saying maybe two.
EISEN: You are.
FINK: Because the market -- the market got crazed over 0.1 percent difference than the estimates. And the market went crazy over that, okay? It's -- we're -- inflation has moderated, and we've always said inflation's going to moderate. But it's going to moderate to that terminal level that the Federal Reserve is looking for? I feel doubtful. Do I believe we could get a stable inflation between 2.8 percent and 3 percent? I'd call it a day and a win.
MIKE SANTOLI: I mean, look, we should remind folks that the PCE number, which is what the target is based on, is like 2.8. I mean, that's basically where we're going.
FINK: But is that a real good number for the average consumer? It is not.
SANTOLI: Actually -- but why do they prefer it?
FINK: I don't know.
SANTOLI: It's because it's weighted by the amount of money we spend on each thing as opposed to what people say they spend more money on. At least that's the Fed's theory.
FINK: Yeah. But it -- if you use the same statistics, how they measured inflation, in the 1980s, with higher weightings in food, higher weightings in housing costs and interest rates, it was closer to probably --
SANTOLI: Right, but household budgets spend so much less on food than it used -- I guess the better question is, regardless of what it means for the Fed, throughout the long span of history, inflation, 2-1/2, 3 percent, plus or minus, has been okay, right?
FINK: Call it a day.
SANTOLI: Exactly.
FINK: That's what I --
SANTOLI: For markets, for the economy, yeah.
FINK: So, I do believe there's room for one or two more easings and test it out. I actually believe there's some segments of the economy that are starting to struggle. And I think I said over a year ago, the transmission of elevated interest rates in the United States are muted because most people who have a home have a 30-year mortgage. We do not have that structural problem that so many other places in the world where -- that have floating rate mortgages, adjustable rate mortgages, where that impact is immediate. It is very muted. It's very delayed, because of the structure -- which is a fantastic foundation for the American economy.
FABER: Although, it is keeping a lid to a certain extent, on people selling and/or buying new homes right now. I mean, we have an extraordinarily low number.
FINK: David, it's really bad for those who need to move. And it's really bad for the young homebuyers who would like to buy.
FABER: Of course.
FINK: So, I'm not trying to suggest it's even and perfect. But it's not as severe. And the longer we have elevated interest rates, the more of what you just suggested is going to be a bigger problem for the economy.
FABER: You know, Larry, when you mentioned car insurance numbers, and the fact that there's, unfortunately, more crashes and the like right now, in part because of distracted driving, I couldn't help but think, though, about full self-driving when it comes, which then gets you to the idea of AI—
FINK: Yeah.
FABER: And what that's going to mean from both a productivity enhancement and potentially as a sort of a deflationary aspect as well. But I'm curious how you think about the advent, particularly of generative AI of late, in your business and throughout the corporate world?
FINK: But I think AI will be the -- will totally transform the business world, the corporate world. If you intersect AI with improved sensor technology in addition to that, to improved robotics, it's not only going to transform the business side, the back office, it's going to transform how we manufacture. And BlackRock started our AI lab in 2018 at Stanford University. It has really helped us improve some of our active, active growth is in our systematic equity team that uses AI and our performance over ten years is about 93 percent above the, you know, consistent performance. We believe that AI will transform how we think, how we invest, data retrieval, information retrieval will be essential. We are using AI to revolutionize our Aladdin system that we provide, our technology system, to so many people. So I'm so neurotic about AI I think AI is going to transcend–
FABER: Well, when you say neurotic, is it both a concern or just that you're not using it as effectively as you could?
FINK: All of the above.
FABER: What does that mean? What's your neurosis based on?
FINK: Neurosis, are we moving fast enough? Are we cautious enough? Are we making sure we have the structure in place to make sure we can utilize it properly? Are we focusing on how we could use new technologies in AI to improve the workforce at BlackRock and improve how we work with our clients and how do we build deeper, better relationships? It's a very complex issue. I also believe we're going to be using AI to transcend how we live. I mean, you know, Elon Musk, you were talking about earlier, about robotaxis. I mean, if you think about an automobile, it's a very expensive capital expenditure for something that you use for 10 hours a week. And if there is an advancement towards more and more robotaxis in cities, you know, think about that. If you don't have to put all that money down on owning a car, more people probably could own a home. There are so many wonderful transformations in society that technology's going to do to improve most people's quality of life. I was with a CEO earlier this week, and this CEO said to me, we are going to use more technology than ever before, and it means, as we grow our business, as a percent of our business, we'll have fewer human beings as a percent of our business, but each employee will have higher wages.
FABER: Right.
FINK: So, you're going to be able to do that. And look at BlackRock and our earnings, we have raised assets over $1.5 trillion in the last 18 months and did not add a job. That is productivity.
FABER: Although, man, all those people who may not be working and maybe we have to -- I don't know what we do for them. And by the way, what about their retirement savings, which you spend a lot of time in your letter on recently, talking about, and being concerned about? Again, to these transformational changes you're talking about.
FINK: They're going to create new jobs, too. Think about all the needs for building out datacenters and management. It's going to reshape our jobs. Let's be clear. Think about all the jobs that have been lost in society, whether telephone operators, even from -- you know, there's so many jobs that have been eliminated, but we have 3.7 percent unemployment. Over time, we create new jobs, and you know, unfortunately, there's a timing differential, and in many cases, a geographic differential. But look, between de-carbonization, between what we're doing in our own -- in our own country related to hydrocarbons, think about, we went from 8 million barrels of energy in the United States to 13 million barrels of energy, all on new technology. So, we're not even -- we're not focusing on how technology has reshaped even something like energy extraction, energy identification. And it's going to be the same technological transformation that is going to build other industries. It's a new jobs, new job creations, and so, I actually believe we should be enthusiastic and front-centered on it. And I do believe this is what's going to be leading the United States to be the strongest economy in the world.
EISEN: I just want to ask you, finally, about China, because I was there this week, and while you're thinking about big picture investment themes, there are some serious questions about where the geopolitics go—
FINK: Right.
EISEN: Between the U.S. and China and where the economic growth comes from in China and whether we've seen the peak. How are you thinking about it?
FINK: So, getting back to my chairman's letter, I talk about hope and fear. I think the biggest fundamental, undiscussed question about China is a fear within China. We're spending so much time talking about imports and exports. China right now is a 35 percent savings rate, the highest savings rate in the world. And they're -- and most of that savings rate because they're frightened of the real estate market? No. They don't have a retirement system. They don't have a health care system and so the savings rates are extraordinarily high. They're not consuming. And so, China, knowing that they don't have a strong domestic economy, is trying to export its way out of its problem and that remains to be a problem. And if you look at, in most advanced economies, the domestic consumption is generally 70 plus percent of GDP. In China, it's 30 percent and most of it is in export. And that -- there lies the paradigm problem between the world and China, and China and the world. China needs to develop more hope within its country, more opportunity in that country and, you know, so that's the statistic I look at. What is a savings rate? It's a pretty simple thing to look at, and if the savings rates go lower and they're starting to consume more, that's a good outcome. But during COVID, actually in China because of the behavior of China and the lockdown, savings rate in China was 50 percent of disposable income. OK, that's not a good thing. And that's why we need to focus on these simple concepts of hope and fear, and then translating that to savings rates. And in China that is the most important statistic to look at. Whether they can find different places to export, that's going to be a big question, but I think Secretary Yellen said some very appropriate issues related to -- if, you know, China is not going to be able to export its problem. It's going to have to advance its own economy, and let's see how that plays out.
FABER: Larry, thank you for being here.
FINK: Thank you.
FABER: For stopping by. Appreciate it as always.
FINK: Good to be here.
FABER: Larry Fink, the chairman and CEO of BlackRock.