BlackRock head says $70 trillion in cash sitting idle as opportunities dry up

Discussion in 'Economics' started by themickey, Sep 8, 2019.

  1. themickey


    Australia: By Lucy Battersby, September 9, 2019 — 12.00am

    Rob Kapito, the head of the world's largest money manager BlackRock, says there is more than $US50 trillion ($73 trillion) in cash sitting idle in portfolios around the world due to a lack of investment opportunities and weak returns.

    He also believes sharemarkets will keep moving higher as the number of shares shrinks due to buy-backs and fewer floats, and that low interest rates are limiting consumption because savers do not want to eat into their capital. Traditionally, low interest rates have spurred consumption through cheaper credit.

    In an interview with The Age and The Sydney Morning Herald, Mr Kapito, whose New York firm manages about $US6.8 trillion on behalf of individuals and institutional investors around the globe, said the world “is flush with cash and there is under-investment”.

    “So what’s happening is a situation where the equity markets continue to rise over time [while] interest rates stay lower for longer. Over $US50 trillion of cash is sitting in client’s accounts, the largest percentage of cash that they have ever had," he said.

    “We are now in a very difficult situation of a shortage of assets with lots of cash looking for opportunities.

    Any dip in the sharemarket caused by trade tensions or economic worries is quickly filled by some of this idle cash, Mr Kapito said, adding that while there is political turmoil surrounding China, global portfolios must include some Chinese assets and everyone will have to become China experts.

    “We try to create portfolios that are less subject to some of the ups and downs of politics,’’ Mr Kaipto said,

    BlackRock also runs iShares, the largest provider of exchange traded funds (ETFs).

    While he expects equities to remain at current prices, there are problems with other asset classes. For example, central banks have been buying huge amounts of government bonds, which reduces the amount available for private investors. And the private equity space is clogged with about $1 trillion waiting to be invested.

    We are now in a very difficult situation of a shortage of assets with lots of cash looking for opportunities.

    He also warned there would be fewer stocks available to buy in coming years as business owners decide to stay private rather than list on the stock market. They can easily get private funding for expansion and avoid all the regulations that come with being publicly listed, Mr Kapito said.

    “What that means is a company like BlackRock will be looking to do more private transactions and private credit transactions,’’ he said. Last year BlackRock purchased California-based Tennenbaum Capital Partners (now called BlackRock TCP Capital), which has lent out $US18.5 billion in private transactions since 1996.

    Responding to comments by federal Treasurer Josh Frydenberg, who recently called on Australian companies to spend profits investing in their business rather than issuing generous dividends or conducting buy-backs, Mr Kapito said businesses only had to spend money to drive efficiencies. And technology was a much cheaper way to get efficiencies than buying new factories or hiring more staff.

    Plus, interest rates have been low for so long that “any company that needs to borrow money to do something, has done it", he said.

    Mr Kapito also said Australia's compulsory superannuation scheme was world leading but said it had challenges ahead.

    The lack of business spending and individual consumption calls into question whether monetary policy still works when so much personal capital has to be accumulated for retirement. For many years Mr Kapito has been warning American clients to save enough money for retirement rather than relying on social security. However, a survey by BlackRock found 43 per cent of respondents were too worried about their current financial situation to invest.

    “I have been very fond of how Australia has handled this in the past by forced savings and investing, because this is something that is necessary [and] many countries are behind. However, when these programs were introduced, they were introduced with a certain age limit when people believe they can retire, but because of longevity the issue is now how to make that work.”

    The solution may be delaying retirement to 75, or increasing contributions, he said.

    “If you think that Australia needs to do something, you can only think what many of the other countries around the globe need to do, but don’t have any sort of a plan,’’ he adds.

    BlackRock is currently creating a product specifically for young Americans lumped with tens of thousands in college tuition fees to help them pay off debt and simultaneously save for retirement.

    Mr Kapito will be in Sydney in November for the Sohn Hearts and Minds conference, which raises money for medical research.
  2. Wheezooo


    I don't understand. There is less than 2 trillion in cash in circulation, and the U.S. is about 20-25% of the global economy. How is he arriving at $73 Trillion in idle cash???
    vanzandt likes this.
  3. Overnight


    Must be maths.
  4. themickey


    I would imagine the term 'cash' refers to bank account holdings, not physical dollar notes sitting in people's wallets.
  5. Overnight


    Now imagine that amount (73 Trillion) in US pennies, and how much all those pennies would weigh. Hehe.
    Wheezooo likes this.
  6. Wheezooo


    Yeah, but even if we jump to M3 (which should pretty much include everything) that's 15 trillion.

    I never quite understood the cash on sidelines argument anyway. If someone uses it to buy a share, then the seller now has cash, so isn't that a net neutral cash transaction?

    I'm going to go find my crack pipe and sit in a corner and ponder this.
    FriskyCat, ironchef and themickey like this.
  7. dozu888


    darn I need a job like this guy, what's he pulling in, 100m a year?

    I put up this thread 'are we gonna run out of shares' 3 years ago.... way ahead of this guy.
  8. carrer


    This is how the nature of the market/economy works.
    Sometimes you have ample opportunities, sometimes you don't.
    Suck it up.
  9. ElCubano


    The key is to know when the iron is hot and when it’s not. How to press when it’s hot and how to fold when it’s not. Any industry, any period of time, any where.
    FriskyCat and GregorySG9 like this.
  10. zdreg


    #10     Sep 9, 2019
    themickey likes this.