Surveillance: Blackstone's Schwarzman On Lower Rates

The Blackstone Group head has emerged as a major philanthropist with donations to the New York Public Library m I. T. N. Yale. Is also close to President Donald Trump and a little bit of a scholar when it comes to China. Well, I'm very pleased to be welcoming on Bloomberg Surveillance and Blackstone Group chief executive here in London. He is Stephen Schwartzman. See welcome to the program. Thank you so much for

coming in. Now. This is basically a faculty hub that brings the humanities faculties to tackle ethical questions on artificial intelligence. But who's it up to to figure out how we regulate this so that we don't displace too many workers? Right? Well, it's it's it's more than that. Uh. First of all, it's bringing together the humanities faculties where Oxford is ranked number one in the world. UH. And they've never been together.

It's all been separate buildings, and now it's going to be combined so they can get the advantage of cross disciplinary kinds of stuff. We're going to have a major performing arts center uh. And UH that will enable certain

themes in the humanities to get played out. UH. And then as I was learning about what Oxford was doing, I realized that their capabilities in humanities and philosophy in particular played right into my concerns about what happens when you introduce AI globally uh, and what happens to the displacement of workers all kinds of other you know, unexpected consequences and and and so using the Oxford core of Western civilization to figure out what's human as you make

decisions of what should be actually implemented is I think the second piece beyond just the technical. But Steve Shorts, the politicians no longer listen to the academics, They no longer listen to the global elite. Why would they listen

to anyone coming from Oxford? Well, I think the reason is that in this intersection between technology about which governments know uh pretty much next to nothing UH and and the real world where workers can be adversely affected, which changes how society works and and and can change political things, that it's important to have somebody who's an arbitrator, if you will, who can make recommendations to government UM, who have knowledge UH and and broach the two areas UH

that there are naturals to do this. Just leaving this to government, as we can see in the United States with just the simple issue of privacy is quite difficult. What are the questions that you would ask about AI right now? There's so many concerns about how certain countries, including China for example, process the data and use the data to profile possibly a lot of their citizens. Well, that's China's right, UH. And the West has a different

set of core values. So one of the things Francine is we're going to be running into this issue of what really are our core values that we care about UH and other other societies with different cultures, they'll do things different and we we can't make them do what our values are and vice versa. Steve Schwartzman, the Library at Oxford going back to six o two has a very modern article out on its website analyzing tweets of the President of the United States. You are one of

the great advisers. You talk often to the president as well. You were the sole remaining free trader, and his ear cone is out the door. Cudlow has done a great job, but Larry has been very ill. We hope he gets better and gets his strength back. You're it on free trade. How do you nudge the first mercantilist back towards Schwartzman free trade? Well, I I think what's underlying that, Tom h And by the way, I have no responsibility for any tweet uh by him or anyone else. Uh that

Uh what what? What? What I think the President is looking for? And I'm not his spokesman on this, but what he's looking for is basically equivalence in terms of open markets and tariffs and and and trade. Uh. And you know, there's not a real desire to intrench the United States in some way. It should be sort of fair competition and all of these issues um that are that are being used as as tactics, uh, if you will, are done to bring people to the table so that

you can get to equal Uh. You know, so the best products win, the best price wins. If the US loses, so they lose. If the U s wins, that's good. But but I don't think there's another agenda. Uh And and so it's really just an evolution. As developed market countries like China get to parity, will they time frame? Steve, Steve, I don't mean to interrupt, but this is really really important.

People don't know that you've also given not only to m I T, not only to others in America and now at Oxford, but you've donated substantial money towards the education of China, where a Schwartzman College. You are a great listener of the leadership of China. What are you hearing from the leadership of China as they go to G twenty, as they deal with this president? What's the nuance you can give us right now? Well, it's a

sort of a time where things are somewhat impenetrable. Um. The negotiations that have been going on basically were stopped by by the Chinese side, and and and each of the two countries. As as you've seen, uh, and we've all seen as seems to be UH sort of bifurcated going to their corners UH and and scaring the business community and creating an adversarial situation and that will continue

unless it's changed by by the two presidents. So so the meeting UH in Japan is quite important because they have the ability to reset expectations which now work hauide close but for some reason just just sort of like disappeared. UH. And if that can be put together in terms of framework, then the trade negotiators can go back to work and perhaps get something done for global audience listeners and viewers

were with Stephen Swartsman. Have a Blackstone who has given a hundred and fifty million pounds to the University of Oxford. If this is a Schwartzman Center for Humanity at Oxford, what would be top of your curriculum, job displacement or ethics. Well, their variety of things. You know, they have seven off an areas, UH, ranging from English and history to to theology and the core UH curriculum of the liberal arts,

if you will, and that will be taught. But in addition, we're gonna set up a new Oxford's going to set up a new AI ethics. Uh. Uh activity which won't just use the humanities, which are an unusual asset of Oxford, but we'll use the other major parts of the university. And Oxford typically is ranked in the top five in the world, one of the great universities. And if you can bring all that to bear, h, we'll have better outcomes.

Do worry about breggits. You're you're giving to a university exactly at a moment where we don't know if we can still attract talent to this country, whether more students will need visas well. The UK has been around for a long time. It depends how you measure, or at least twelve hundred years. Uh. And UH, things in the short term are not nearly as important as what we're trying to do in the long term. And and you know, Brexit will take its way. That's up to the British

uh and the Parliament, the government. It's so well covered. Uh, nobody knows quite how it's going to turn out. And from my perspective on this gift, UH, what's important is we set up the right structure for a hundred years, two hundred years. If you look at the program that Tom was mentioning about which was a Schwartzman Scholars program at sin Kwa in China. Has a trade war affected that? Well,

it's amazing. Uh. You know that program is sort of like the Roads, except we take extraordinary people and instead of going to Oxford, which is sort of an accident, um, going to China and teaching them about how China works. It starts with the endorsement of President she and President

Obama UH. And thus far we have not been affected. UH. Education were generally in China has felt somewhat of a chill uh, as as as there a variety of issues, whether their trade or other types of things affecting China, UH, leading it to a more of a nationalistic approach. I think Schwartzman scholars is viewed as a window on on on the Western world and for the West into China, and so I think it serves everyone's purpose to have

Schwortzman Scholars thriving. Steve Schwartzman I got a playoff a Wall Street Journal article today on scale on the size and success of your Blackstone folks, to just give you perspective. In the last ten years, Steve Schwartzman has outdone Golden Sax by one thousand, seven undred forty two basis points. It's stunning twentysomething percent per year versus a Paul three five or whatever at Goldman Sacks per years. The stunning,

stunning out performance. Are you getting too big? I mean, just simply, Steve, can you move the needle on deal transactions anymore with the scale that you've invented at Blackstone? The answer is sure, or else we wouldn't do it. We're not in the business of trying to hurt customers, and our investors were trying to help them. And the way you get bigger in our world isn't by going into one strategy and keep making it's so big that

the thing can't perform anymore. Uh. The sort of approach that we've always had is to add new ideas which which manifests themselves as different funds, and they should be right sized, and we should catch an opportunity where there's really great returns, and we keep our more mature funds. They grow, the world grows. Uh. But but their job isn't to grow in an accelerated rate. We also don't

need many deals in each of our funds. So in a normal year, typically maybe we would do ten transactions for a fund um, just a little range on either side. But for example, in private equity, we have two hundred and fifty people all around the world. If we can't do ten really interesting investments, we're really doing something wrong. Steve Buried in the bout at Oxford is a book. It's an ancient ancient Gothic book from about sixteen forty, What the hell do we do with Deutsche Bank? It's

a great book. Let me ask you the question right now, what would you do with Deutsche Bank? Well, this one is sort of a tough one. I don't know that they were writing about it in sixteen forty, but they certainly are in uh and the issue there, And you know, I don't work at Deutsche Bank, but but you know they basically I have an investment bank and and and a consumer banking system, and the consumer bank isn't really profitable in the investment bank is suffering really from this

endless questioning. It's very hard to keep any service organization together. As as as you asked that kind of question, Tom, which really reflects questions that everybody are in asking, including you know, sort of their shareholders and board people. But if you were in charge, either Deutsche Bank or regulators, would you consolidate banks in Europe? It feels like it's overbanked. I would not be in charge. Uh. There are certain things we can pick in life, and that's one pick

that I wouldn't choose. Okay, would you be fedchair? And and do you believe that the world needs more stimulus? Is that right? That that we're in a devish stance or the world economy is kind of at turning points? Are we are we putting more more trouble ahead by stimulating too much? Well, you know, there's sort of three economic blocks. You've got China that's got its own issues but still growing somewhere in the five to six percent area,

despite at least the current levels of tariffs. You've got the U s that's slowed down a little bit. Um. You know, my own guests, nobody ever knows these things. They all keep being revised anyhow, even if they were reported. U is somewhere around two to two and a half uh.

And and and given the fact that Europe is running negative interest rates UH and slower growth, the issue is really Europe and and the currencies start adjusting, you know, to these negative rates and US slower growth, So it's sort of logical, you know that US interest rates might come down a little bit. Uh. You know, we're slowing,

but we're not anywhere near approaching recession. Steve, I want to talk about We opened with the President of the Montage in Orlando, explained disaffected Republicans why they need to step up and support President Trump for a second turn. They can't turn, they can't stand him. How do how do you and the President get disaffected gop over to support him once more? Well, I think, uh, you know, I'm not a political election expert, Tom, I'm like everybody else.

I watched this stuff. Uh and and I think, uh, what will drive the Republicans to come out is which Democrat uh is the nominee to the extent that that the Democratic nominees you know, proved threatening uh to to middle class or other people. Basically last election, I guess was was won pretty much by suburban women who went to the Republican in sixteen. At the moment, that's not

the case. Uh. It depends, um the issues that they're facing. Uh. And if if they think that the Democrats have gone too far left, uh, that you know they'll they'll swing back. Uh and and we won't know who that person is. We don't know what they really believe until later. But what does the US economy need right now? What kind of policy policies is the US economy need from from the U S. President? Well, I think, um, the only change in policies were already running really big deficits, so

so there's not a lot of room on the fiscal side. Uh. You could move interest rates down a little bit, but they're actually pretty low. Uh And whether they get a little lower is great symbolically, it's it's not going to change what business decides to do. It just gives you some confidence. So I think the type of thing that would would work is if some of the trade issues were resolved, so people could could have the confidence to know what's going to happen. That's what slows an economy.

Steve Schwartzman, thank you so much. That is, of course Steve Schwartzman, the chief executive of Blackstone, with that pledge of a hundred and fifteen million pounds to Oxford University town dropping by the studio to catch up with this. Julia Coronado macro policy perspectives President and found a good morning to Julia, good morning. Where do we start? What can we expect from Chairman Pound a little bit later? Well, I think there is a sort of a confusion amongst

a lot of market participants. Certainly, the survey we conduct showed that a lot of different views. Nobody's most people don't expect him to come in and announce a rate cut, although that's possible, but they do expect him to open the door to rate cuts which the market has already priced in. So the question is, we don't expect big changes in their outlook. We don't expect necessarily big changes in the dot plot. So how does he describe the situation?

How does he open the door? Will it be enough for markets that are already well well ahead of the Fed? On that? Just to how difficult this has going to be for Cham and pals. Yeah, it's a tricky. It's a tricky press conference because you see, you have global risks, both a global flowing in the economy and trade risks that are just impossible to calibrate and quantify, uh, weighing heavily on their mind. Even as the data flow in the US is okay and Meanwhile, on the other hand,

you've got inflation running low, inflation expectations running low. Would a rate cut do much to stimulate that. That's the debate that they're having. So what's the strategy here is the chairman, Do you lean on the triling data, say that's okay, and then lean on the uncertainty about the outlook. Is that the strategy for today? Yeah? I think there's there's two strategies. One is you say, look, there's there's risks to the outlook. Those risks are skewing to the downside.

We are seeing data slow as expected, but coming with some downside risks. That's a reason to possibly take out some policy insurance. And then on the other hand, there's been a persistent issue, and that is inflation that is running too low, uncomfortably low to their objectives, and inflation expectations that are showing again some signs of slippage. And that's a risk that they have flagged over and over again. Uh as a you know, more of a structural challenge

to monetary policy. Yesterday was frightening, to use a fancy financial word. The President came to the rescue with a tweet, John, would you agree with me that one single tweet lifted

the markets. Yeah, I think it was responsible for a big part of the movie Yesterday's Together with or all of it whatever that can flip right now, What are the ramifications for Chairman Powell and other institutional leaders if we take another run at the low rate scary shillings talking about Yeah, it's it's it's sort of nightmare scenario to manage the monetary policy communication with this wild swings and trade policy signals. Um, what we have in hand

is a trade war. We have tariffs that have been put in place that are having an effect. You are starting to see that again in the global economy. You're seeing it in business investment, which has been quite sluggish. Uh. So I think it's in addition to the noise which is extremely volatile, and the Fed is in sort of a lose lose situation no matter what they do. You do actually have trade restrictions that are starting to have an effect on the economy. So uh, you know, I

think the Fed just stays in this lane. It stays focused on that outlook. But it's it's a very difficult, uh communication challenge for them. Judy. Just to raise the question, are you comfortable ruling down a right cut today's mating.

I mean, I think it's a possibility that they that they move ahead, and I don't you know, I don't think it's It would be a terrible idea, given that you look, cheer Pal is gonna walk in and have to defend a dot plot he doesn't necessarily believe, defend a baseline forecast that doesn't hold as much meaning in the current form, and so the risks are that he's just goes in there and struggles. Uh. And so one possibility if you think you're going to cut in July,

is to go ahead and cut in June. And then the narrative is, see, we are flexible, we are response. That's the problem with the dots, and I think it's going to be a big, big problem later today. It's very difficult to forecast the cup without actually cutting interest. So we're set to have you think, a dot plot that shows the median dot with no rate hikes for the rest of the year. That's still a spread between the market and the FED of three interest rate cuts.

How difficult is it going to be to manage market expectations at this meeting. It's very difficult because because the markets are risk sentiment is sanguine in part because the Fed. The markets expect the FED to cut. So then does the Fed not cut because markets are sanguine? That's what you give your undrum. What's your run rate on g d P? I mean, Bruce Caswin and JP Morgan a major house are it is stunning? One point five percent twelve months forward? Are you there? Yeah, we're below two

percent twelve months forward. For sure. We do expect we're in this moderation. We're slowing to at a minimum, slowing to trend. And you're gonna give me a bunch of terminal value? Are start blogning? President Trump doesn't care about that. Everything politician Republican or Democrat says the economic growth you just described as unacceptable, So they go Fed save us. Is there any history out there that a Fed can spur economic growth? Uh? The Fed cans for economic growth.

The question is do they think that that is necessary when we are at a three point six percent unemployment rate? And the Fed will conclude no, they don't need to inject a lot of stimulus at this stage. They may need to. So if we hear some opening of the door, it would be a recalibration, taking out some insurance. It's not stimulating the economy with the objective of not seeing trend like growth. The objective for the FED is trend

like growth. There is attention with politicians and no matter what the FED does, they will be the lightning rod for the president. Just to wrap things up, in the last ten years, we've had two grud scales. Twelve, we had a whole lot worse than this, right, didn't they Well, they did in part because the markets didn't expect the FED to move and and for example, markets were expecting the FED to to hike rates and that contributed to a deterioration in a correction and sentiment. So this is

the conundrum we're facing right now. We are in a global slowdown, like the global data paint a very similar picture. We are starting to see energy prices slipped to the lower end of the range that could hurt the energy interesting. So we are seeing that unfold very similarly. But the markets like, oh, we know the playbook. The Fed's going to respond and recalibrate and keep us on track. We never know the playbook. Julia, thank you briefly, Christian Mamany

and invest go great to see a Christner. Typically we introduced Christna and we just start the conversation on markets, and I want to do something different. Back in two thousand and nine, Christian Mmany stood there when a lot of people were looking for the Federal Reserve to hike interest rates over the next twelve months and said, no, rates are going to stay low for a whole lot longer than you think. Fifteen sixteen, we had a big growth scare. There were some people that thought we were

about to drop into a real recession. Christian Mmany stood up and said, no, we're going to have the longest economic expansion on record. We're there literally a month away. Christmas standing up now and saying five more years. That this expansion can go for five more years. And Christna, that's not just a headline to get attention. You truly believe this, and I want to understand it a little bit more today. Absolutely, I believe this, And then thank you, John.

You're easily bribab also yet that uh. But the fact of the matter is that when you don't have inflation, the policymakers have a great deal of flexibility to engineer outcomes, and that is what they have been doing for a reasonably long period of time. Remember one thing, the world faces lots of risks. So the best policies central banks, in their totality can implement is to make sure that we don't get into a recession. That is their objective

number one. So coming into two thousand nineteen, our thesis was fed tightened, tightened too much. It shouldn't have tightened when inflation was nonexistent. At some point they're going to pivot, and they're going to pivot hard. And our thesis was growth is moderating, but it is not moderating to a very low level, not to a catastrophic level. And in that context we will have significantly far more supportive policy than we have had in a long time. And that's

how things are playing out. So five more years is still our thesis, and I think there's good reason to think why things are going to be reasonably okay on from on the growth front. For quite some time, the heritage of Oppenheimer funds, going back to Oppenheimer Special Fund and Oppenheimer Tograph Fund a million years ago, truly a million seems like a million years ago. Krishna was to be opportunistic what's the opportunistic now in big cap international stocks,

I get really mixed messages. Well so, I I think at the at the top level, what is opportunistic is the fact that technology is still going to do quite well. So I think the world is changing and the world is changing in a meaningful way. How do you get

valuation on those big how do they catch up to America? Well, so, I think valuations overall, I'm looking at valuations to drive your investment decisions has been a bad metric for quite some time, and that is how it is going to remain And and the reason for that is very straightforward. In a growth short world, companies that can deliver growth will end up being valued significantly more than companies that deliver just okay, where is the opportunity then, in priced

revenue right now? Given how starved we are for revenue growth. Well, so I would say the regular technology companies, some of these who have been reclassified as communications companies, Uh, there's tremendous opportunity there. I would say in in in in China, for example, companies like Ali Baba. The valuations are high,

but they're doing all sorts of things ten cents. So there are lots of companies on a global basis that you can find who are executing as well as it can be expected in the current environment, despite tremendous amount of headwinds. When those headwinds fade slightly, I think growth prospects of those companies increased meaningfully, and investors are going to assign significant premium over and above what they have already assigned to those companies. So right now we're pricing

in significant easing. The global bond market has twelve point five trillion dollars of negative yielding assets. The objective of que should be to flush us out of core government bonds and to put us into riskier pockets. That's the objective of QE for so many people, that's the objective of looser monetary policy for so many central bankers. Will

it be effective? Can that happen? Can you get the asset inflation in risk assets that these central banks pushed for at the turn of the decade and going after the financial crisis? Well it has worked. And if you all for that, all you have to do is look at where S and P five is. I understand where we are now, Christian, I just mean going forward from

here or are they pushing on a string now? Well, so they're they're pushing on a string to some extent in terms of engineering significantly higher levels of growth and engineering significantly our levels of inflation. From an asset price standpoint, I think they're not pushing on a string. We are close to all time highs, and I think if the policy remains supportive and we have two percent growth, that will end up at asset prisis being meaningfully higher. Your

previous quest wasn't you know we are we? You know you're making fun of people being defensive. We are not defensive. Our outlook for S and P five hundred by your end is probably close to thirty one hundred. I'm behind, and from what I can tell from reports, most of the known world is behind. How do they catch up with your optimism? Do they slide into the market or do they acquire shares today with optimism? Well, I think they are probably going to be pushed into acquiring a position,

as opposed to going in. How are you pushed into it? Pushed by Amazon? You're pushed into it by the markets going up, and you steadily following because you're afraid of falling behind. And that has been happening up there right now. All year we're up sixteen percent, I mean twenty six thousand and four six. Everyone feels behind, don't they? Well, they do, but but let's kind of take a step back and look at not just two thousand nineteen returns, but longer term returns. And what we see is in

a year SMP really hasn't done much. So I think there's that's this tremendous room for SMP five or U stocks to do reasonably well. And I think if the if growth materializes at the level that we expect in the second half, things will be significantly better than where they are today. Christian momany with with us with Oppenheimer Funds, we should say that Oppenheimer Funds has been a wonderful supporter of this show, including our visits down there as Krishna. Yeah,

minor correction here, Appenheimer Funds doesn't exist anymore. We got acquired by Investco, so we are investor. Excuse me, I didn't know that that transaction finally had closed. We did. We didn't change introducing Thomas f I c I O at Investco did wed Yeah, what's the official name that you're using? Investco? No, it's Investo. Should we do this in the commercial break? No? I think you want? No, it's great, It's okay with Investo. Excuse me. Let's bring

in Vince Reiner of Melan right now. Wonderful day, Vince Reiner with us. Vincent Reiner, of course, head of economic research for Alan Greenspan at the FED for decades and really codified the quality of research in the modern FED. If you were at the FED today, Vincent research, which Vincent Reinhardt, which research? Nicknamed that research? That Vincent research. If you were at the FED today and not at Melan, which research piece would you reach for to advise Chairman

Powell what to do? Is it or fandes? Is it others? Which is the research piece that matters? Actually, my initials are v r R, so they do work. I actually would be who nineties wrote about the predictability of the federal funds rate. If you think about it, the overnight rate doesn't really matter for long term rates that just one day out of ten years. The FED, any central bank projects an influence on longer term rates because they affect the entire path for interest rates. That's why most

of your focus right now is about communication. What do they say, how what how do they get? How far out the yield curve do they influence the market? Way further than makes it much sense? Actually, I don't understand, like ten years deals move so much and why far ahead forwards moves so much, And part of it is central banks just have a hard time anchoring expectations. But if you want to look about how far a central bank and influenced things, how about President dry He's got

a negative tenure rating many of his jurisdictions. Uh, same same, same as true for the Neyear zero policy rated tenure rate in Japan. Central banking does matter. It matters for the longer term in terms of how the anger inflation expectations. Let's come back this Ryner where this with Melon. We're thrilled death insive Wrayner with us. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio