Government stimulus has “masked” the softening U.S. economy. For one, to avoid bad publicity several large recipients of stimulus funds — like the airline industry — have held off on employee layoffs. But when their stimulus money runs out Wednesday, if they fail to receive more, they’ll have little choice but to initiate large-scale layoffs.
That’s the short-term forecast for the economy from David M. Rubenstein, co-founder and co-executive chair of private equity firm The Carlyle Group, which manages $221 billion in assets, in an interview with ThinkAdvisor.
Further, Rubenstein warns that unless low-income Americans receive additional stimulus payments, they’ll fall into the “COVID crater,” only to see their economic circumstances worsen.
One — subjectively — optimistic note: Rubenstein argues that the death of Associate Supreme Court Justice Ruth Bader Ginsburg has given President Donald Trump’s reelection effort “a breath of fresh air.”
At 71, Rubenstein is a familiar face to many as host of “The David Rubenstein Show: Peer-to-Peer Conversations,” where the philanthropic mover and shaker interviews fellow movers and shakers in fields ranging from finance to entertainment to government.
He’s not afraid to throw humor into his relaxed interviews and in our chat boasts that he “even made Ben Bernanke [ex-Federal Reserve chair] look very funny.”
Rubenstein has just published a new book, “How to Lead: Wisdom from the World’s Greatest CEOs, Founders, and Game Changers” (Simon & Schuster-Sept. 2020). In our interview, he discusses six of his interview subjects — including Warren Buffett and Jamie Dimon — of the 31 that make up this collection.
Rubenstein grew up in Baltimore, the only child of a postal worker dad. He practiced law for two years, then was named deputy domestic policy assistant to President Jimmy Carter.
In 1987, he co-founded The Carlyle Group, which became one of the world’s largest buyout firms, expanding to alternative asset management and private credit, and going public in 2012.
He is chair of the boards of trustees of the John F. Kennedy Center for the Performing Arts and the Smithsonian Institution, among others, and a trustee of Memorial Sloan Kettering Cancer Center and Johns Hopkins Medicine and others.
ThinkAdvisor interviewed Rubenstein, speaking from Washington, D.C., by phone on Sept. 23. We touched on more than a few interesting tidbits, including Jack Nicklaus’ rating of Trump’s golf game. Said the champ, in an interview in Rubenstein’s book: “Of all [the U.S. presidents] I’ve played with, Trump is probably the best player. He doesn’t really ever finish many holes, but he can hit the ball. He just goes out and plays, and enjoys it.”
Here are highlights of our interview:
THINKADVISOR: What’s your forecast for the U.S. economy?
DAVID RUBENSTEIN: The economy isn’t in great shape because we’ve had, in effect, a heart attack with this gigantic pandemic-related recession. The federal government has propped it up with, kind of, artificial resuscitation. But when that money runs out, unless the government puts in a lot more, you’ll see more and more people lose their jobs.
How soon are further big layoffs coming, do you think?
Some of the larger recipients [of stimulus money], to avoid bad publicity, haven’t fired people. But on Sept. 30, the money for the airlines and some other money runs out, and you’re going to start seeing a lot of layoffs. We’ve masked [the softening economy] with all this assistance, though not without cost: The federal budget is 50% debt and 50% revenue.
How would you specifically characterize the economy?
“A tale of two cities.” If you’re in the internet world — Google, Facebook, Apple, Microsoft, those kinds of companies — you’re in great shape. If you’re working a food truck, not educated, don’t have internet access at home, don’t have child care, you’ll fall into “the COVID crater”: The income inequality you might have experienced before will get worse.
How long will it take for the economy to recover?
A while. Normally a recession takes about two-and-a-half to three years to get back to where you were before. I suspect it will take us at least two-and-a-half years.
In the face of all that, the stock market has been doing well [though with significant volatility soon after this interview]. What’s your analysis?
It’s been propelled by the booming tech companies. [Without] them, the market would be down about 20-some percent from when [the pandemic started].
What else would cause the market to decline substantially?
For political purposes — it seems — the Justice Department is going to file an antitrust lawsuit against Google before the election. I suspect that will propel the stock market to go down a bit in the tech world.
It’s true, though, that Google and other powerful companies just keep getting bigger and bigger, right?
Yes, Google [etc.] have been allowed to grow very big, and [mostly] nobody’s been upset about it. But it would be very difficult to break up or shrink these companies unless the [U.S.] government is very serious about it.
What are the implications of this suit?
When the government files a lawsuit a [month] or so before the election — if it does — you have to argue that it’s probably political, and you wonder whether the next administration will continue the suit.
What are the chances that President Trump will be reelected?
I know Donald Trump, and I also know Joe Biden very well. I thought that Trump would have a very difficult time getting reelected because of all the body blows he’s taken — the pandemic, economy, investigations. However, I think that [Associate Supreme Court Justice] Ruth Bader Ginsburg’s death has given him a breath of fresh air and light.
Anything else that’s changed your mind?
The polling data suggests that Trump and Biden are getting closer in Florida, Pennsylvania, North Carolina, Arizona and Wisconsin. So I wouldn’t rule out any [possible] outcome. If it’s very, very close, we’ll have to resolve it in the courts. That will be a jump ball: You don’t know what’s going to happen.
Clearly, the coronavirus pandemic will hold sway with voters. In your book, you include two interviews that you held with Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases — one, this past April. He’s worked for seven presidents and is apolitical. He’s also very diplomatic, isn’t he?
He’s as diplomatic as you can be. But President Trump got tired of having press conferences at the White House where Tony would contradict him. Tony deserves a lot of credit for standing up for what he believes in. He’s been in a difficult situation being outvoted in Coronavirus Task Force meetings — and obviously a lot of politics is involved.
Why did he stop participating in those press conferences?
It’s a complicated situation when you’re working for the president of the United States, and he’s saying things you don’t believe in. I understand why Trump wouldn’t want him at the White House press conferences because who wants to be contradicted in their own building?
Dr. Fauci knew in January that the coronavirus had potential to be devastating. In February, President Trump was downplaying it. Why didn’t Dr. Fauci sound an alarm?
I interviewed him about the virus in February. He didn’t think it was going to be that serious, he would say publicly. He knew it was potentially difficult; but, in February, he didn’t think it would be this bad.
A moment ago, you mentioned the late Justice Ruth Bader Ginsburg, whom you knew well. In your interview with her that’s in the book, she talks about having trouble getting hired as a lawyer right after graduation from law school. She said she had “three strikes” against her: “Being Jewish, being a woman and the absolute killer — I was a mother.” So the discrimination she faced wasn’t only because she was a female. Please comment.
Jews weren’t being hired by major law firms in those days. She finally got a clerkship only because somebody twisted a judge’s arm. She was very smart — she weighed only about 100 pounds, but about 98 pounds of that was brain. She had a very unusual way of responding to questions: She’d say nothing for about 15 or 20 seconds because she was processing the question and trying to give a very thoughtful answer.
Many Democrats were angry at Justice Ginsburg for not resigning — when she was aging and in poor health — while Barack Obama was president since obviously, he would have appointed a liberal judge to succeed her and the Senate was controlled by the Democrats. Do you know why she didn’t step down?
She had observed that when colleagues resigned, they deteriorated mentally and physically because they had nothing to do. She was afraid she would be like them. Her husband had passed away. [Former Supreme Court Assoc. Justice] Sandra Day O’Connor had retired to take care of her ill husband, but he eventually had to be [admitted to a facility]. She told [Ginsburg], “The biggest mistake I ever made was resigning at 75. I could have done another five years.”
In contrast to Justice Ginsburg, Bill Gates, co-founder of Microsoft, had a sense of urgency — urgency to write computer software because he didn’t want anyone to get ahead of him in the software race, he says in your interview. So he dropped out of Harvard to work on software. Did he regret quitting?
He’s told me many times that he probably made a mistake because the software revolution wasn’t happening so quickly [it turned out]; so he could have stayed at Harvard, gotten his degree and would still would have been able to build his company.
It’s interesting that Bill Gates would take Learning Company courses, as he says in the interview. Which subjects?
As I recall, they were scientific kinds of things that he didn’t think he knew as much about. He used to take off a week or two every year and go on a retreat by himself just to catch up on books.
You’ve known Warren Buffett for many years too. Does he read much about the companies he’s considering investing in?
He doesn’t read long memos on whether he should buy this or that company’s stock. He just has his intuition [and his filters], and that’s really the best thing you can use.
He said, in your interview, that it takes him only two or three minutes on a phone call to know if there’ll be a deal or not. How can he decide so quickly?
Because he has certain standards and can tell right away. He doesn’t say, “Let me think about it. I’ll read about it.”
Buffett turned 90 in August. How’s he doing as a nonagenarian?
His mind is pretty sharp. I haven’t seen a lot of brain matter deterioration. He pretty much sits in his office in Omaha and then goes home. He plays bridge every night [on computer]. He has a partner — a woman in San Francisco — who’s a world champion.
Another of your famous interview subjects is Jeff Bezos, Amazon founder-chair-CEO, who, like Buffett, relies very much on intuition for decision-making, correct?
Yes. He doesn’t read a 500-page memo that McKinsey [Consulting] has prepared. He uses his gut.
In the interview, Bezos gives three of the reasons for his success. What are they?
He doesn’t make any decisions before 10 a.m. He doesn’t make any decisions after 5 p.m. He gets eight hours of sleep a night.
Okay, but what’s the core reason that Amazon is so fabulously successful?
[Prior to Amazon], a lot of people were selling books over the internet. But Jeff eventually decided that, though selling books was good, selling everything was better. So he built a distribution system that enabled people to get products quickly. He didn’t worry about quarterly profits for a long time. People made fun of him for [that], but he didn’t care.
How did he manage to get through the dot-com bust intact?
His was about the only public dot-com company that survived, though Amazon’s stock went down as low as $6 a share from $65 or so. He survived because he recognized that building market share was the key. While people were making fun of him, he had good technology for delivering the products; and he was building market share through selling things at very, very low profit to no profit. So when the world came back, he was in pretty good shape.
Jamie Dimon, chair and CEO of JPMorgan Chase, is a business leader who’d like to become U.S. president, he says in your interview with him. What’s standing in his way?
He’s a very committed Democrat and realizes that the Democrats are never going to nominate him. Therefore, he’ll never be president. [Instead], he feels his contribution to society is being a very good bank CEO — running a bank and making it work very well. He says he’s helping the country that way. It’s not a bad point.
How come you interview famous people on television? You certainly don’t need to do that in your capacity as co-executive chair of a private equity firm.
My mother would say I was a yenta [Yiddish for busybody] when I was growing up. When people came to our house, I was always asking them questions. She’d say, “Leave them alone!”
You know numerous celebrities and have easy access. How did interviewing them come about?
I would book very famous people to speak at my investment firm, but they were boring. Eventually, I thought, “I’m paying people $200,000; and the investors are falling sleep.” So I went out [front] and did a little interview [with them] and made up a humorous question here and there. People liked it. I even made [former Federal Reserve chair] Ben Bernanke look very funny.
What prompted your transition to TV?
When I became president of the Economic Club of Washington, I realized that business people were boring speakers, too. So I started doing little interviews with them as I was at my firm. About four years later, someone at Bloomberg called and asked me to do interviews [on TV]. It’s fun.
Is there anyone you’d love to interview that you haven’t so far?
The pope and Queen Elizabeth, but they probably wouldn’t agree. Donald Trump after he’s been president — I think I’ll do that, at some point, to ask him some questions I’d like to know the answers to. But the people I’d like to interview the most aren’t around anymore: Abraham Lincoln, Thomas Jefferson, King Henry VIII.
What would you ask the six-time married King Henry?
“Why didn’t you just get a prenuptial agreement instead of chopping the heads off [two wives]!”
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