BlackRock's Rick Rieder on markets, rates, the Fed and more

The current investment environment is described as one of the best ever, driven by technological advancements, strong earnings growth in some tech companies, and abundant income opportunities in fixed income, yielding around 6% before potential Fed rate cuts. This environment allows investors to explore various assets like public equities, private markets, gold, and Bitcoin.

There's an expectation of the Fed cutting rates, possibly by 25 basis points next week, though a 50-basis point cut is seen as more beneficial. The speaker advocates for taking advantage of current yields before rate reductions, as they offer better value now. Concerns about stagflation are downplayed, with projections indicating solid nominal GDP growth of around 4.6% and real GDP around 2%, which is considered good given the national debt.

The discussion also touches on Fed independence, emphasizing its criticality for maintaining confidence in currency and debt management. The speaker believes that despite potential technological productivity gains, the future may present challenges in employing enough people, with potential job displacement being a secular discussion for the coming years.

• The current investing environment is considered one of the best ever seen.
• Income opportunities in fixed income can yield around 6% before the Fed cuts rates.
• The speaker believes the Fed will cut rates, likely by 25 basis points, though a 50-basis point cut is preferred.
• Nominal GDP is projected to be around 4.6% this year, with real GDP around 2%, which is considered positive.
• An ideal portfolio includes long equities, fixed income with good yield, hard assets like gold, and Bitcoin for balance.

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Best Investment Environment [00:06]

• The current investing environment is described as one of the best the speaker has ever seen.
• This is attributed to a combination of factors occurring simultaneously.
• Key drivers include technological change and incredible earnings growth at a number of tech companies.
• There is also bifurcation across different companies in the fixed income market.
• Abundant income opportunities exist, with the potential to create 6% income until the Fed cuts rates.
• A wide array of investment options are available, including public equities, private markets, gold, and Bitcoin.

The current investment environment is exceptionally favorable due to technological advancements, robust earnings growth in tech, and widespread income generation opportunities in fixed income, offering around 6% yield before potential Federal Reserve rate cuts. This diverse landscape allows investors to capitalize on various asset classes.

"You've got income everywhere. You can still create 6% income until the Fed cuts rates. That's super exciting in different areas. You've got public equities, you got privates, you got gold, you got Bitcoin. There's so much to do that it's the best I've ever seen in terms of figuring out where it is."

Federal Reserve Rate Cuts [01:24]

• The speaker anticipates the Fed will cut rates next week.
• They believe a 50-basis point cut is what the Fed should do, but expect a 25-basis point cut.
• The upcoming CPI report will be influential in this decision.
• After the initial cut, rates are expected to start moving down.
• Even with rate cuts, it's still possible to build a portfolio that yields well.
• Staying in the front to the belly of the yield curve can provide good yield.
• Extending duration slightly is also becoming attractive due to current real rates.

The Federal Reserve is expected to implement a rate cut, likely 25 basis points, with the possibility of a larger 50-basis point move influencing the decision. Even after the cut, attractive yields can still be secured in fixed income by focusing on shorter-term durations.

"Yeah. So, do you by the way, they're going to cut next week? Yeah, they're going to cut I think they should cut 50. They're going to cut 25 probably. It will depend. You know, the CPI report that's out tomorrow will be or Thursday will be interesting. Listen, I think they should go 50, but I think they're going to go 25 and then we're going to start moving rate down."

Investor Value Before Rate Cuts [02:02]

• The current period before the Fed cuts rates represents the best opportunity to take advantage of a trade.
• This trade will likely still work after the rate cut, but the value will not be as good.
• For wealthy savers in the country, current interest rates are considered phenomenal due to the income they provide.
• From a commercial standpoint, the speaker would prefer rates to stay higher.
• However, from the perspective of what's best for the economy and lower-income individuals, rates need to come down.

The period preceding anticipated Federal Reserve rate cuts presents a prime opportunity for investors to secure favorable yields and value, which is expected to diminish once the cuts are implemented. While higher rates benefit wealthy savers and commercial interests, a reduction is seen as beneficial for the broader economy and lower-income segments.

"Okay. So, this is the best opportunity before they cut rates to take to take advantage of a trade that will still work after they make that move, but you're not going to get as good of a a value on it as you will literally like now."

Stagflation and Economic Growth [02:37]

• The speaker does not believe stagflation is a primary concern.
• Projections for nominal GDP this year are around 4.6%, following previous years with 5% or higher nominal GDP.
• Despite predictions of recession, economic numbers have remained resilient.
• Real GDP is expected to be around 2%, perhaps just under 2%.
• Adding inflation to real GDP results in nominal GDP close to 5%, which is considered good given the national debt burden.

Concerns about stagflation are considered minimal, with economic projections indicating healthy nominal GDP growth of approximately 4.6% and real GDP around 2%. This growth trajectory, despite earlier recession forecasts, suggests a robust economic outlook, which is particularly beneficial given the country's existing debt levels.

"No, I don't think I think growth. I think we can get real GDP of about 2%, maybe just under two. you put some inflation on it, you get nominal GDP. That's which close to five, which by the way, with the debt burden we've got in this country, having a five nominal GDP is pretty good."

Fed Chair Speculation [03:44]

• The speaker declines to comment on being on a shortlist for potential Fed chair.
• They express that being mentioned in such a list is an unbelievable honor given their long career.
• The speaker acknowledges it's a great group of people to be considered among.
• They note that current Fed policy involves moving 25 basis points at a time, possibly three times this year.
• This incremental approach to moving the overnight funding rate is not considered particularly exciting.
• There are many innovative things a Fed could do regarding balance sheets, liquidity, and yield curve positioning.
• The Fed's current actions, like reducing mortgages while mortgage rates are high, are seen as detrimental to many people.

Regarding speculation about a potential Fed chair role, the speaker expresses gratitude for the honor of being considered but refrains from further comment. They highlight that current Fed policy moves are incremental, and there's a broader scope for innovation in monetary policy that could better address economic challenges, such as high mortgage rates impacting many individuals.

"What I want I don't want to say anything about that, but all I want all I want to say, you know, from a by the way, when I heard that, listen, I you know, I've had a long career. It's a it's an unbelievable honor to get to be even mentioned in that list. It's a great group of people. To even be up there is a pretty neat thing for me."

Economic Challenges and Tariffs [04:41]

• A significant issue is the difficulty faced by low-income individuals, a situation not seen with this intensity for an extended period.
• The speaker disagrees with the notion that tariffs are inherently inflationary and must be fought against.
• Tariffs primarily impact goods, which disproportionately affect lower and middle-income consumers.
• Charging higher borrowing rates in conjunction with goods inflation is seen as not being in equilibrium.
• The speaker believes rates can be brought down.

The current economic climate presents significant challenges for low-income populations, exacerbated by the impact of tariffs on goods. The speaker argues that this combination of high goods prices and elevated borrowing costs creates an imbalance, and that reducing interest rates is necessary.

"We are seeing something in the country today that we haven't seen with this intensity in an extended period of time. Low incomes having a really hard time. And you know I don't agree with the thesis that well tariffs are inflationary. We've got to fight in tariffs. You think about and by the way it's half the country that's having a hard time."

Fed Independence and Inflation [05:51]

• Fed independence is considered critically important for maintaining global confidence in the management of the currency and debt stack.
• However, the speaker believes there are still creative approaches that can be employed.
• Even with slightly higher inflation or tariff transmission, historically, inflation has been difficult to reach 2% prior to COVID.
• The next 5 to 10 years are anticipated to be an extraordinary period of technological productivity.
• After fiscal tailwinds next year, the bigger issue may be employing enough people.
• There is evidence of weak labor markets, with negative job growth if healthcare is excluded.
• The speaker believes many people will be displaced from their jobs due to technological advancements.

Fed independence is paramount for global financial confidence, yet creative monetary policy solutions are still possible. Despite potential inflation pressures, historical trends and upcoming technological advancements suggest a complex future. The speaker foresees a period of high productivity but also significant job displacement, making employment a key concern.

"So, a couple things. So, for a smart guy, I would say listen, I think Fed independence is critical. You think about how today one of the big critical items for this country is we got to fund debt globally. People have to have confidence in we're managing the currency. We're managing our debt stack effectively."

Market Narratives: Bonds vs. Stocks [07:32]

• The bond market and stock market are currently telling different stories about the economic environment.
• Bonds are primarily focused on the current slowdown in the labor market.
• Stocks are looking forward to a cyclical acceleration.
• If equities became genuinely concerned about the growth outlook, there could be significant downside.
• The interest rate strip is already pricing in a lot of easing.
• The speaker finds it hard to definitively interpolate what the market is telling them, often viewing it as reflecting technical conditions.
• Equity market earnings growth is currently good, partly due to cost-cutting, but not significant revenue growth.
• The market anticipates continued good earnings growth.
• There's a substantial amount of cash available for buybacks, dwarfing the IPO calendar.
• Technicals in equities are described as amazing.
• The bond market is indicating that the fed funds rate is too high and needs to be lowered.
• Neutral rate is debated, but the speaker believes it's lower than 3%, considering technology and productivity.
• The bond market expects the fed funds rate to reach at least neutral, and this is anticipated to happen over the next year and a half.

The bond and stock markets are currently presenting divergent views, with bonds reflecting labor market concerns and stocks anticipating economic acceleration. The speaker views equity technicals as strong, supported by earnings growth and substantial buybacks, while the bond market signals the need for lower interest rates.

"He's very good. I I would say a couple of things. One, I you know, it's always I always find it hard interpolating what the market is telling you. Oftentimes, the market tells you what the technical condition is."

Ideal Portfolio Construction Today [09:14]

• The ideal portfolio today looks very different from those of the past.
• The equity market is experiencing an extraordinary technology dynamic.
• The recommendation is to stay long equities, particularly in areas of growth and technology.
• Volatility can be bought cheaply to manage exposure.
• In fixed income, income is described as amazing, with opportunities to clip 6% yields.
• Staying in five-year durations on the curve is still advised, with some extension of duration also being considered.
• There are interesting opportunities in private markets and bespoke markets.
• Hard assets, such as gold and Bitcoin, should be included in portfolios for balance against potential currency depreciation.

Constructing an ideal portfolio today requires a departure from traditional approaches, focusing on long equity positions in growth-oriented technology sectors, and capitalizing on strong fixed income yields. Inclusion of hard assets like gold and Bitcoin is recommended for diversification and protection against currency devaluation.

"Very different than the past. So maybe I'll start with uh I'll start with the equity market. I mean the first thing I would say we're going through the most extraordinary technology dynamic I've ever seen before. I would stay long equities."

Bitcoin Allocation [10:15]

• The speaker believes Bitcoin should be part of a portfolio.
• A 5% allocation, which is commonly discussed, seems high to them.
• In their global allocation fund, they are running long equities and are heavy on income.
• Gold is held in the range of 3% to 5%, seen as a better currency hedge.
• Bitcoin tends to trade with volatility and the NASDAQ, so their allocation in crypto is considerably lower than 5%.
• They believe Bitcoin is going to go up and is a good expression, but 5% still seems high.
• The appropriate percentage depends on individual circumstances and risk tolerance.

While acknowledging Bitcoin's potential as an investment, the speaker suggests that a 5% allocation might be too high, citing its correlation with volatility and the NASDAQ. Their own fund holds significantly less crypto, favoring gold as a currency hedge, and emphasizing that the optimal Bitcoin percentage is subjective and depends on individual risk appetite.

"Bitcoin tends to trade with V, tends to trade with the NASDAQ. So, we're running considerably lower than that in uh in crypto. I just think it's going to go up and I think it's a good expression, but five seems high to me, but it depends where you are in your life and and how much risk you want to take."