What You Need to Know
- Fink said he will be focusing on how inflation is affecting every corporate earnings report for the third quarter.
- He said a shortage of hydrocarbons due to government green transition policies is contributing to higher prices.
- BlackRock recommends a 50/30/20 portfolio, with 20% in alternatives including private equity and debt.
Larry Fink, the founder and CEO of BlackRock, is “very frightened of inflation.” In an appearance at this week’s Schwab Impact 2021, Fink said, “Inflation is real. It is not transitory and I think the market is trying to digest what that means.”
The market has responded with a surge in long-term bond yields. By midday Thursday, the 10-year Treasury yield was 1.66%, up 35 basis points from a month ago and almost double the yield of a year ago.
Fink, who heads the world’s largest asset manager, with over $9 trillion in assets, said rising inflation could send the 10-year Treasury up to 2% to 2.5%, which would be a “big test” for the market.
It could also be a big test for the Fed which has maintained that rising inflation is transitory even as inflation is running well above its 2% target. The Core Personal Consumption Expenditure (PCE) which excludes food and energy and is the Fed’s preferred inflation indicator was up 3.6% in the most recent reading, for August.
Fink said he will be focusing on how inflation is affecting every corporate earnings report for the third quarter, especially the impact on margins. “Until earnings season is over we will be in this uncertain period of time,” said Fink, referring also to the global market and global economy emerging from the ravages of COVID.
Rising Oil Prices
One reason for rising inflation, according to Fink, is the huge shortage of hydrocarbons due to governments putting pressure on companies to restrict new investments in that energy source.
Energy prices have been soaring, but not only because of those pressures.
“It is inaccurate and misleading to lay the responsibility at the door of the clean energy transition,” said a recent report from the International Energy Agency.
The report attributed the rebound in energy prices to “an exceptionally rapid global economic recovery (the fastest post-recession growth in 80 years), a cold and long winter in the Northern Hemisphere and a weaker-than-expected increase in supply.”