Larry Fink: Long Term Investors Should Be At Least 80% In Equities Or Hard Assets

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Following is the unofficial transcript from a CNBC exclusive interview with BlackRock Chairman & CEO Larry Fink on CNBC’s “Squawk on the Street” (M-F 9AM – 12PM ET) today, Friday, October 13, 2023.

BlackRock CEO Larry Fink: Long term investors should be at least 80% in equities or hard assets

JIM CRAMER: Well I am so excited because we have someone who’s going to make it.  So someone who does a lot more history than I do and a lot more outlook of what’s going on in the world, and BlackRock reported a terrific quarter this morning, and I think that given the fact that there’s outflows, it just shows  you that technologically they’re doing a lot to make it so that’s no longer the fulcrum of why we look at it.

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They reached now over $9 trillion. When you look at it, when you see that number, that’s like governments. You say like, oh, $9 trillion. That must be the U.S. government. Anyway, BlackRock’s Chairman and CEO Larry Fink joins us now to discuss the quarter.  Larry, congratulations. You guys can make money no matter what. It’s my day.

LARRY FINK: Thank you, Jim, Carl. Good to see you.

CRAMER: And I wanted to ask you, on your conference call, you say you are disappointed, because you’re a competitive person.

FINK: Yes.

CRAMER: I am sorry about the Dodgers. And what I look at, and I say to myself, if you’re disappointed with these numbers, you’re doing everything you can to bring in money. There’s really not more than you can do. And it just happens to be the world and where the bonds are that I think are making –

FINK: Yes.

CRAMER: So, your competition is tough.

FINK: Look, as you said, our revenues were up five percent. Our operating income was up seven percent. Net income was up 14 percent. We did have some outflows in our precision ETF, which is a great example of more people choosing iShares to trade —

CRAMER: Right.

FINK: — around. Actively trading it. And when the market sentiment turns like it did in August and September, and you can just see that daily, people should pay attention to the precision. You know sentiment and you see outflows. However, I mean, it’s up hundreds of billions of dollars in the last few years. So, every time we’ve seen this period of time, when we see Apples, we see real in flows when sentiment turns. We had one big client in India who took — pulled out money.

It had nothing to do with it. Our normal flows were 95 percent of the average flows over the last bunch of quarters. And then, systematically, over the last 12 months, we’re up $300 billion in net inflows. And so — and we see a huge opportunities in flows over the next year or so, because all the things we’re working on.

But, there is no question we have a better understanding of the texture of what’s going on in the market through our ETF platform and our global network. And unquestionably, we’re seeing — my barometer of hope and fear, with all the geopolitical issues, we’re seeing more fear, more people pulling back, and you’re actually seeing that in the yield curve. You’ve seen the yield curve flattened.

CRAMER: Right.

FINK: And the yield curve is flattening because, a, people think we’re closer to the end of rate hikes. I’m still calling for rates, long rates to be above over five percent. I think the numbers of inflation this week really shows the stickiness of it. We’re going to do a lot more military spending as a result of —

CRAMER: Right.

FINK: — geopolitical issues. We are going to see an acceleration of fragmentation to supply chain because of geopolitical issues. But also, as we advance AI and robotics, there are such an enormous opportunity to near shore and I think this is all the dynamic. That’s part of the dynamics of what’s going on in China, when you were talking about China and China’s growth issues. We are seeing a recalibration. As I think I said a couple of quarters ago, people are reassessing other dependencies, and one of the great dependencies of the world still has is the amount of manufacturing assembly in China.

CRAMER: Right.

FINK: Technology is allowing us to recalibrate that. And then, we’re also recalibrating. You look at the growth rates of India. You look at the growth rates of Mexico, great opportunities in the long term.

CRAMER: Yes, both. I know you know Mexico very well.

FINK: Yes.

CRAMER: India was quite impressive this quarter.

FINK: And that’s where money is going to.

CRAMER: Right.

FINK: I was in Japan last week, and the amount of investor interest to invest in Japan is extraordinary. We have a Prime Minister, a new Prime Minister in Kishida, who has really reoriented the entire economy, more business-friendly, business open. They’re trying to track more and more external capital sourcing, actually money moving from different locations back in Japan. And Japan has been an area where investors have been systematically under investing.

CRAMER: Right.

FINK: And so, they’re going to — now getting back in.

CRAMER: But, you make the point of the generational opportunity in bonds. But, you said about —

FINK: Yes.

CRAMER: — the 30-year. Now, I found myself looking at portfolios because I have to invest in bonds. And I was very attracted to, candidly to the high yield.

FINK: Yes.

CRAMER: It just seemed like a great opportunity. But, I don’t know where that’s where you would prefer someone my age. Who is interested in that and who shouldn’t be?

FINK: As rates go higher, you’re going to see more immunization of the old defined benefit plans to lock in. As liability rates went up, we are seeing more and more pension funds, more corporate funds that are actually match assets and liabilities. And so, they’re going to be able to immunize the volatility. And that means they’re going to be selling out of equities, buying more long bonds, and that will happen. It’s not happening yet. But, let’s be clear. If you could start earning seven percent on credit —

CRAMER: Right.

FINK: — if you could start earning 10 percent to 12 percent on infrastructure investing as our Infrastructure Act going in, as their IRA starting to be implemented, these are going to be good, healthy, long-term investments that are going to be anywhere from 8 percent to 15 percent returns with high probability of success.

CRAMER: Right.

FINK: And so, that’s where a lot of money is moving.

CRAMER: OK. Carl, I was talking about how the rich people come and there is a basis peril, this is where I am like —

FINK: Yes.

CRAMER: — see opportunity.

FINK: Correct.

CRAMER: And people who are listening to say, you know what, in this time of peril, did he just say I might be able to get those rates? That’s pretty darn good.

FINK: And you know, right now, we’re facing a lot of headwinds on geopolitical issues. Hamas invasion in Israel, the horrific acts, that creates a lot of fear. And people are actually pulling back, watching this.

CRAMER: Right.

FINK: At the same time, you know, and the headlines of every newspaper, every website is about the fear issues about the world.

CRAMER: Yes.

FINK: But, if you overlay the opportunities in investing in AI and robotics, the opportunities in near shoring and recalibrating supply chain, now if you overlay because you were talking about the healthcare companies, now if you overlay the incredible transformation with Ozempic and other items, what it’s going to do for longevity of life.

CRAMER: Yes.

FINK: OK? This week, we discovered that these drugs can help in renal failure. They can help in other things. Now, if you overlay that and like Eli Lilly’s drug for Alzheimer’s, that extends the pathway by at least 40 percent. This is creating hope. And so, a lot of people ask me, why isn’t the market collapsing because of all of this? We’re not spending time talking about these opportunities of – there is incredible medical discovery that is elongating life. We have great recalibration of supply chains that’s going to bring jobs here, opportunities here in the United States, in Mexico and India and other places. So, you know, we’ve spending so much time in the negatives.

CRAMER: Right.

FINK: But, all of this just tells me why you need to be continue investing.

CRAMER: Yes. Of course.

FINK: These are the opportunities.

CRAMER: We spend so much time talking about the fact that we’re not going to eat sugared cereal. Maybe we should talk about the idea that maybe our average lifespan is going to be 75.

FINK: But, you know, think about what that means, though, getting back to long duration bonds. So, if we’re going to be living longer, are we being prepared properly? And if you could start locking in, you know, seven percent, eight percent, nine percent for 10, 20 years, that’s going to give you a lot more confidence and dignity and retirement.

CRAMER: But people are betting against themselves. They think if they’re making to 72, they should be thinking that they can make it to 85. They better have enough money when they get there.

FINK: I think that is going to be the biggest societal risk.

CRAMER: Yes.

FINK: And I think, you know, look, we’re seeing more death because of drugs, drug abuse, and so, that’s bringing down longevity rates, all those type of issues. And so, if you make it to 60, you have a higher probability making it to 80 and 90 and 100. And so, the statistics of the declining mortality rates are hiding some of the real upsides, and I’m not trying to dismiss some of these tragic medical problems like, you know, drug abuse. But we may be solving obesity, which is a major problem of so many of the problems. And so, I’m more optimistic than ever with the overlay that in the short run, we’re going to have to face some near-term issues.

CRAMER: Right.

QUINTANILLA: Do you think that that means the median age of the marginal equity buyer rises?

FINK: Yes.

QUINTANILLA: Where you will tolerate risk later in life.

FINK: I am and I’m older. No question. I think the traditional reallocation, I think, the 60/40 type of thing, I think, you know, for a long-term investor, long-term view, who can tolerate market volatility, you should be at least 80 percent in equities or hard assets.

CRAMER: Amen.

FINK: It could be real estate. It could be infrastructure. And if you could really tolerate it, in my mind, you should have been 90 percent,100 percent in equities. Now, a lot of people can’t afford that type of volatility.

CRAMER: This is a radical view, and yet it’s an empirical view.

FINK: It proves out. You got to have a 10, 20 year view.

CRAMER: Right.

FINK: OK. I’m a hopeful person. I believe that in 10 years and 20 years, humanity is in better position than it is today. With that view, I want to own hard assets. I want to own equities. I want to be a part of this economy.

CRAMER: But, how do you deal with the fact that so many people come on our shows and say this is the most perilous time? I saw Wednesday is most perilous time since World War Two. Others talking about how the budget deficit is going to reduce this to a pitiful helpless giant.

FINK: Yes. There are – no question. I mean, one of the facts that makes me shudder, in 2000, the U.S. deficit was $8 trillion. It’s $33 trillion today. So, think about it. Over the last 23 years, we raised our deficits by $25 trillion, more than a trillion dollars a year. That is unsustainable. So, those – if we don’t grow out of this problem, this is why I want to talk about optimism –

CRAMER: Right.

FINK: — we’re dead. We can’t shrink our way out of this. We have to grow ourselves out of it. So, I actually believe those are real worries, and  I think that’s why I believe inflation is going to be higher for longer, the financing of our deficits. But, this is why I’m going to every government. I’ve been in six countries in the last two weeks. I’m going to six more countries in the next two weeks. I believe deficits are going to start impacting economies.

CRAMER: Right.

FINK: And that’s why there is a greater need for public-private investing. And that’s where BlackRock comes in, working with governments, working with states, working with municipalities on – forget about the old way of financing, increasing your deficits. You’re going to have to provide more opportunity for private sector to invest. And that’s going to be the eight percent to 12 percent investments for our economy.

CRAMER: Now, you speak about governments. And I think you know more about investing and talking with China than anybody I deal with. Perhaps, I didn’t – I don’t deal with Kissinger, which is a shame, because I think he still knows more than everybody else.

FINK: He is an amazing man especially at 101.

CRAMER: 101.

FINK: We should all be that – having that type of acuity at 101.

CRAMER: Absolutely. But, when I listened to him, I think he does say, he and Graham Allison, one of my professors, I’m so old, said that we’ve got to solve the China thing before it really goes off the rails. Is there a way to solve China?

FINK: Look, there is a recalibration of relationship going on. And if you’re in a recalibration of the relationship, it creates this type of stress.

CRAMER: OK.

FINK: OK? I think we woke up that relationship was too asymmetric. Our trade imbalance continues. We had a trade agreement in 2017. China has only lived up to a portion of what they committed to. They’re not investing. They’re not buying more and more U.S. goods. We’re trying to make our trade more consistent with each other. They should be buying more of our agriculture. They should be reaching out to finding ways of deepening in the relationship.

You know, we had six U.S. Senators in China this past week. We are trying to have a dialogue to recalibrate it. And at the same time, let’s be clear. China is still supporting our enemy in Russia. You talked about that earlier. You know, if China was a corporation and they were dealing with our enemy, we would consume our business elsewhere. So, I put it in that caliber of business, and that’s what’s accelerating this movement of recalibrating supply chains.

China became supportive of their clients, and their largest clients are the U.S. and Europe. And they’re supporting their clients’ enemy, or it appears they’re supporting our enemy. And they weren’t as loud as they should have been related to the issues in Israel. That forces everybody to say, should I recalibrate my relationship more? And I think, you know, I’m always a believer, it is economy. And we’re going to see a systematic more outflows out of China if they don’t reorient themselves to be working with their clients. And so, I’m not saying it’s going to work out.

It could get worse. But, I actually I wanted to simplify why we have this. You know, but, some of our greatest American companies have huge businesses in China. We under discuss that. They have real businesses there. And so, we have to be thoughtful. OK? There are going to be segments of our economy that we are going to restrict. But, there are segments of our economy that we want to embellish with all our trading partners. And I think that’s why I think a dialogue and a conversation is important. And I thought it was fantastic that the six Senators led by the majority leader Schumer going there, working there, meeting with the leadership of China and having a hard edge conversation.

QUINTANILLA: Schumer is going to be going to Israel now.

FINK: As he should. Yes.

QUINTANILLA: And I wonder what you think the risk is about Iran jumping in and how we navigate all that with Gerald Ford now enroute?

FINK: I think having the Gerald Ford there was a spectacular statement by the United States. I think President Biden’s statement could not have been any more direct. You know, I know as much as you do.

CRAMER: Right.

FINK: Obviously, this is very fluid. Obviously, the horrific actions of the terrorists of Hamas. At the same time, the issues around the Gaza Strip. All of these issues are – let’s be clear. War is bad. And so, I don’t know how this will play out. Let’s hopefully – if you look at the oil market, the oil markets are a little frightened that this is going to be more elevated.

Obviously, we can’t be frightened of one day actions and one day moves. We’re going to know a lot more in the next 10 days. But, our hearts out at BlackRock, we’ve been working with all our employees. We have office in Israel. We had to make sure that every one of our employees was safe, their families were safe. Some of our employees are being called into the Military. I mean, this is a very fluid issue for us. And we are trying to work with all our clients worldwide.

CRAMER: It is at the university level, not individuals, and we’ll talk about that, but allocations. When I was at Harvard, we fought hard to not allocate any money to companies that were doing business in South Africa.

FINK: Yes.

CRAMER: And I didn’t think there was any issue about that. I helped lead the movement, because I felt that they had slaves, basically they were slaves. I think there are other schools right now where there are students who are very much divest from any company that deals with Israel, works in Israel. Are you seeing that as part of your fund flow?

FINK: We have the largest ETF in Israel. So, there has been outflows in the last few days.

CRAMER: There have been.

FINK: That’s a de-risking.

CRAMER: No. That’s absolutely right.

FINK: And the shekel has declined. I mean, that’s just a market action. The answer is clearly no. I am not – we are not seeing anybody looking to divest from Israel for political reasons.

CRAMER: OK.

FINK: OK? For economic reasons, in short, that’s the beauty of ETF. It’s a market sentiment instrument. So, you can see every day how the market is moving, and that ETF, we’re seeing some outflows recently, and that’s more of a market sentiment issue. And, you know, and they’re going to have to be spending a lot more money on military. And so, their investments in tech and all that stuff is going to be slowing down. So, look, war is bad.

CRAMER: Right. You put it. Yeah. I mean, what is it good for. I have one last question. You ain’t going anywhere. Right?

FINK: I’m not being called up for duty.

CRAMER: No. I just hope that you’re sticking around.

FINK: I am sticking around. I actually have more energy. As I said, I’ve been in six countries the last two weeks. I’m going to six more countries in the next two weeks. I get energized by travel. I get energized by having deeper connections with our clients. And the opportunity I see for BlackRock overseas is fantastic. The conversations of public-private partnerships which we announced this partnership with the Government of New Zealand with their net zero fund. We’re doing a huge project in Australia right now in battery storage. I’m very excited. We’re going to have a couple of big announcements here in the U.S., partnerships with some major companies. This is what gives me the energy to move forward.

CRAMER: Excellent.

FINK: And the most important thing what also gives me a lot of energy, I could tell you, we have a great team of leadership behind Rob and I at BlackRock.

CRAMER: Great board, too.

FINK: — that are going to power the firm for many years ahead.

CRAMER: OK.

QUINTANILLA: You don’t look tired.

CRAMER: No. You don’t look tired. And I feel like I listened to you there. I remember my friend Marc Benioff, and he is my friend. What can I say? Business can be the greatest force for social change.

FINK: It is the greatest force for social good. And let’s be clear, capitalism every day shows it’s the best economic force in the world. It is the greatest long term economic force for peace.

CRAMER: Let’s leave it there. Larry Fink, thank you so much for coming on, on set.

FINK: Thanks.

CRAMER: Really appreciate it.

FINK: Good to see you.

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