Black(Rock) Monday: Larry Fink and the $6.2 Trillion Liquidity Conundrum

April 21, 2019 17:15 UTC

By CCN: Amongst the litany of bearish naysayers, one bullish voice still screams louder. Larry Fink, the CEO of the world’s largest asset manager – BlackRock – is sticking firmly to his forecast that there is no bogeyman waiting to slaughter the US stock market.

BlackRock Not Worried About Recession Battering Stock Market

BlackRock has 6.2 trillion reasons to downplay recession fears. | Source: Shutterstock

The billionaire investor made his comments to Handelsblatt. Mr. Fink, it seems, is not perturbed by the much-publicized “Fed Pause”:

“I see no signs of a global recession in the coming 12 months… The central banks have loosened their policy above all because of the weak fourth quarter of 2018. We will go through a phase in which things are not great but also not bad.”

This doesn’t mean he is unbridled in his bullishness:

“But we are naturally in a late phase of the economic growth cycle.”

Clearly, Fink is hedging, aware that the stock market’s bull run is getting a little long in the tooth. Otherwise, investors might turn on him for being blind to growing equities risks.

Larry Fink Can’t Be Bearish When He Manages a $6.2 Trillion Oil Tanker of a Fund

Great stuff, but you can’t take these comments too seriously.

Yes, I do believe that Fink is bullish, but he doesn’t have a choice. BlackRock has $6.2 trillion in assets under management, and maneuvering during a period of thin liquidity would be practically impossible.

That’s a bit like an oil tanker that turns its engines off 20 miles before it wants to stop and has a turning radius of 2 miles. Fink will be screaming “buy!” before – and after – the next recession hits.

BlackRock owned some $60 billion of Apple and Microsoft stock at the end of 2018, along with roughly $50 billion worth of Amazon. This was after a stock market dip that was the worst since the Great Depression.

Engineering a stock market soft-landing is going to be extremely difficult. With the bulk of BlackRock’s institutional portfolio in financials and tech, they are the most overweight in areas of the highest liquidity, so as expected, they are well aware of their situation.

UK Client Outlines BlackRock’s Inflexible Approach

In fact, this problem becomes even more evident when you talk to their clients. Speaking on condition of anonymity, a current BlackRock client in the UK (~$80 million AUM) provided the following fascinating soundbites regarding the investing behemoth’s approach:

“Despite managing a segregated portfolio for us, BlackRock have been reluctant to vary our investment strategy from their global stance. For example, they were disinclined to discuss the introduction of ethical investments.”

This would tie into our hypothesis that the firm has quite an inflexible approach and only want to deal in the most liquid assets. Then there’s this:

“Questions about weakening our exposure to UK equities (Over 50% of our portfolio) have been met with BlackRock encouraging us to stay with our long term strategy of maximizing long term returns. We were dissuaded from converting our UK equities to cash due to the cost of doing it and the time it would take. “

On their own, these comments might tell us a little something about Fink’s firm, but in context, these are precisely the hallmarks we would look for to front-run a very dangerous liquidity situation that could be in the offing.

Jamie Dimon and Larry Fink Are Singing From The Same Hymnal

Jamie Dimon and Larry Fink are singing the same tune on the stock market. | Source: REUTERS / Mike Blake

Larry Fink is a bit like a Bitcoin whale at this point. He can buy the dips and take profit when stock market momentum is strongly bullish.

The whale approach is excellent so long as the market eventually goes higher.

Jamie Dimon is peddling the same glass-half-full outlook as Fink, and we all know he would never have an agenda. BlackRock and JPMorgan wouldn’t be trying to manufacture late-stage liquidity to stabilize their heavily overbought positions, would they? Of course not! Billionaire Dimon is a blue-collar hero.

A more pronounced acceleration to the downside and BlackRock might look like Austin Powers making a three-point turn in his golf-cart.

Last modified: October 14, 2019 00:42 UTC

@bullishtulips

Financial speculator & author living in the hills in Los Angeles. J.D. but very much not a lawyer. Favorite trading books are anything written by Jack Schwager. Co-Host/Writer of Just Curious Media's "Pop Finance". Email: bullishtulips@gmail.com, Twitter: @bullishtulips