The $2.2 trillion economic emergency legislation that was signed into law late last week is likely not big enough to stabilize the biggest economy in the world, according to Larry Fink, the CEO of BlackRock, the world’s largest asset manager.
Another stimulus package of $1 trillion is probably required, said Fink, who spoke on a teleconference with institutional investors and others on Thursday.
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) includes more than $550 billion in benefits for workers and households; $500 billion for big businesses, most of which will be funneled through the Federal Reserve as lending facilities; $400 billion for small and medium-size businesses; plus another $280 billion for corporate tax relief, $180 billion for the health care system and $175 billion for emergency aid for state and local businesses. More than $100 billion will go to the Federal Emergency Management Agency, local schools and colleges, mass transit and foods stamps.
Many households will receive $1,200 for each adult and $500 per child, and unemployment insurance will be expanded and include benefits for freelancers and contractors.
“If we look at the course of the coronavirus in the U.S., most people believe there will have to be another package moving forward,” Fink said. That package may also include “adjustments” to the latest emergency aid package to address the “big challenge” of delivering its benefits to households and businesses.
When it comes to delivery of benefits, “the devil will be in the details,” Fink said, adding he hasn’t heard how the government will connect with independent contractors or hourly workers, for example.
He noted that about $450 billion in aid for businesses included in the latest economic emergency bill will be funneled through the loans controlled by the Federal Reserve, which could potentially leverage that amount, creating as much as several trillion dollars in aid.
BlackRock has been tapped to administer two emergency lending facilities recently initiated by the Fed: one to new investment-grade bonds and another to buy investment-grade bond ETFs. BlackRock will also be buying commercial mortgage-backed securities as part of the Fed’s new, revised quantitative easing program.
Like many others on Wall Street, Fink said the path of the economy will depend on the path of the virus and governments’ response to both.
The virus continues to spread globally, affecting close to 720,000 globally and 140,000 in the U.S., according to Johns Hopkins. Nearly 34,000 people have died from the virus, known as COVID-19, including close to 2,200 in the U.S. Among the victims in the U.S., the chief financial officer of Jefferies Group LLC, Peregrine “Peg” Broadbent who died from coronavirus complications, according to a company statement on Sunday.
“All governments are trying to focus on executing fiscal stimulus to stabilize economies,” said Fink, adding that “at some point I hope we see more international cooperation, including between the U.S. and China. This crisis will move to emerging markets and it will take international global effort to ultimately defeat the virus.”
As for the financial markets, Fink said “I believe we are working towards a solution. That does not mean the economy rebounds but we’re moving away from having a financial breakdown on top of an economic breakdown.”
Much of that avoidance lies with the Federal Reserve, which has announced several programs to stabilize the financial markets and tapped BlackRock to run some of them — a facility to buy new investment-grade bonds from U.S. companies and one to buy investment-grade ETFs. BlackRock will also buy mortgage-backed securities as part of the Fed’s renewed bond purchase program, also known as quantitative easing, which now also includes municipal bond purchases.
Fink says the coronavirus pandemic is increasing risks in the municipal bond market and in the commercial real estate market.
States and municipalities will be collecting fewer sales income taxes, which will put “enormous stress” on them, said Fink. “I don’t know who will resolve this, maybe a second stimulus. This is going to be one of the big open issues way beyond the virus.“
Commercial real estate will suffer from the increase in conducting business remotely, which is how many businesses are operating currently, said Fink, who questioned “the viability of commercial real estate anywhere … There will be some very large changes in how we do our business and large changes in countries and companies.”
Despite the damage the COVID-19 pandemic has inflicted on the economy and financial markets, Fink sees some “real opportunities” for investors now. These include quality dividend-paying stocks like Pepsi and Procter & Gamble, whose dividends are well above Treasury yields, and tech companies that provide video conferencing and other needs for employees working away from the office, as many currently do. He didn’t name names, but Zoom, a leader in audio and video conferencing, has seen its share price surge 43% since the end of February, while the S&P 500, even after some recent rallies, is still down almost 14%.
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