Blackstone's Schwarzman saying inflation is over. Wishful thinking ?
Steve Schwarzman posted the below on LinkedIn yesterday. What's your opinion ? Wishful thinking or real insight?
The breadth of Blackstone’s portfolio gives us a unique pulse on inflation. This informed our view in 2021 that inflation would be pervasive and persistent, not transitory like most expectations. Today, these same signals give us cause for optimism. Inflation appears to be moving to the rear-view mirror.
Purchasing managers in our portfolio reported much smaller increases in input costs, shipping costs are nearing pre-Covid levels and wage growth, which has proven sticky, shows early signs of moderating. The 5% CPI reading was no surprise to us. In fact, if you strip out shelter, which tends to lag, inflation is in the mid-3% range – a sea change from 6 months ago. That said, we expect continued vigilance by the Fed, with a “pause and hold” posture on interest rates – not a pivot.
Insights like this inform how we deploy capital on behalf of our clients. And with nearly $200B in dry powder, we head into what we believe could be a historic opportunity to invest on strong footing.
Agreed. 1 more hike and hold, inflation will come down. The longer they stay at 5% Fed funds, the more pain will be felt, esp. at places like Blackstone where floating rate debt on their 6-7x+ leverage PortCo's is going to really start to hurt as we get through Q3'23 (~1 year of 4%+ SOFR). Not to mention, any LBO in 2020-1h'22 likely stretched hard on valuation (good look finding the next idiot to buy your PortCo for a higher multiple).
And that's not even mentioning the pain in their PropCos with the valuations of the underlying RE assets...
Inflation being in the rear view mirror, even if true, is pretty much a non-view. The fact is there is still an historic asset bubble in nearly all asset classes, if we judge by valuation and standard deviations off of historic medians. Until this bubble deflates either all at once (crash) or through a period of 5-7 years of multiple compression and flat real growth, the upside in nearly every asset class in the US market is in the low single digits at best, and likely negative. There has been a handful of times or fewer in modern history where the risk/reward has been so poor for long-term investors.
I agree with your diagnostic. But the purpose of this thread was to discuss inflation's stickiness. Which is relevant to discuss as it can potentially be the catalyser for accelerating the deflation of this epic asset bubble via tightening of financial conditions.
Yep. Cheap money feels great. But then you need a little bit more. And then a little bit more and then the flow of capital comes to screeching halt when the whole system becomes illiquid. When the music stops, as is now the case, there will be some tragic losses. Earnings and economic growth are slowing. Transfer payments are slowing, along with salaries. As this plays out, people will try to save every penny they have. Most of it will be used to make the next payment on that overpriced house they can’t afford and that they are significantly underwater on at current rates. The whole economy as a whole will slow. And that’s when the bubble pops.
Whenever you take the pendulum too far to one side, it is inevitable that it swings back to the opposite extreme. Often at galloping speeds. That's how the economy works.
In this environment, cash is king. Unless you are a trader, there is no point to try to beat the market. Investing just for the sake of investing is a foolish game.
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