Blackstone Inc. · NYSE:BX
Blackstone — Q4 2019 Earnings Presentation
41 slides from Blackstone's earnings presentation, October 2019
Slide 1: The Timing of the Next Recession
The Timing of the Next Recession 4th Quarter 2019 Joseph Zidle Managing Director and Chief Investment Strategist Byron R. Wien Vice Chairman, Private Wealth Solutions If you would like to receive future monthly market commentary publications, please email [email protected].
Slide 2: Introduction: Intellectual Diversity Is a Core Value
Blackstone Investment Strategy For Discussion Purposes Only Introduction Intellectual Diversity Is a Core Value Here at Blackstone, diversity of thought is prized as an indispensable strength. Views that are unpopular or otherwise out of consensus are welcomed, not discouraged. The rigorous exchan
Slide 3: Table of Contents
Blackstone Investment Strategy For Discussion Purposes Only Table of Contents I. Ten Surprises and “Radical” Asset Allocation 3 II. US Growth Rolled Over 8 III. Inflation and Implications for Fed Actions 20 IV. Global Economic Outlook is Dimming 28 V. Trade Remains the Biggest Threat 36 VI. Bubble i
Slide 4: I. Ten Surprises and "Radical" Asset Allocation
I. Ten Surprises and “Radical” Asset Allocation
Slide 5: The Ten Surprises of 2019
Blackstone Investment Strategy For Discussion Purposes Only The Ten Surprises of 2019 These surprises were announced Thursday, January 3, 2019. The definition of a surprise is an event that the average investment professional would assign a one out of three chance of taking place, but which I believ
Slide 6: The Ten Surprises of 2019 (Cont'd)
Blackstone Investment Strategy For Discussion Purposes Only The Ten Surprises of 2019 (Cont’d) 6. March 29 comes and goes and there is no Brexit deal. Parliament fails to approve one and Theresa May, arguing that a change in leadership won’t help the situation, remains in office. A second referendum
Slide 7: "Radical" Asset Allocation
Blackstone Investment Strategy For Discussion Purposes Only “Radical” Asset Allocation Decrease US allocation by 5%, increase cash allocation by 5% Asset Class Allocation Note Global Large Cap Multinationals 5% Fair value in terms of yield and multiple Other US Long Only 10% Growing downside risk Eu
Slide 8: NDR Crowd Sentiment Poll
Blackstone Investment Strategy For Discussion Purposes Only NDR Crowd Sentiment Poll (7/31/2002 – 9/24/2019) S&P 500 Composite Index S&P 500 Index Performance Full History: 12/1/1995–9/24/2019 Arrows represent extremes in optimism and pessimism. They do not represent buy and Extremes generated when
Slide 9: II. US Growth Rolled Over
II. US Growth Rolled Over
Slide 10: Recession Checklist Monitor
Blackstone Investment Strategy For Discussion Purposes Only Recession Checklist Monitor Primary and secondary recession indicators are mixed Tech Housing Indicator Note Bubble Bubble Current Average Hourly Wage growth of +4% y/o/y creates inflation concern Primary Indicators Earnings Growth
Slide 11: GDP Growth Is the Sum of Growth in Productivity and Labor Force
Blackstone Investment Strategy For Discussion Purposes Only GDP Growth Is the Sum of Growth in Productivity and Labor Force Real GDP 10% Real GDP vs. (Productivity + Labor Force) 6/30/2019 = 2.3% Average = 3.1% (—) 5% 0% Productivity + Labor Force (5%) 6/30/2019 = 2.3% (‐ ‐) 4% Nonfarm Productivity
Slide 12: US Potential Growth Is 2%
Blackstone Investment Strategy For Discussion Purposes Only US Potential Growth Is 2% Growth slowing to potential, as effects of the 2017 tax reform wear off US Actual and Potential GDP Growth (YoY % Change) 4% 2017 Tax Reform 3% 2% 1% President Trump Takes Office 0% 2010 2012 2014 2016 2018 2020 20
Slide 13: Leading Indicators Point to Further Slowing
Blackstone Investment Strategy For Discussion Purposes Only Leading Indicators Point to Further Slowing US leading economic indicators continue to decline US Leading Economic Indicators (LHS) and Real GDP Growth (RHS) YoY % Change YoY % Change 8% 4% 6% 3% 4% 2% 2% 1% 0% 0% 2012 2013 2014 2015 2016 2
Slide 14: Most Reliable Recession Signal Is Flashing
Blackstone Investment Strategy For Discussion Purposes Only Most Reliable Recession Signal Is Flashing 10Y/2Y spread inverted before each of the past five recessions 10‐Year to 2‐Year Treasury Yield Spread 3% 1 0.9 2% 0.8 0.7 1% 0.6 0% 0.5 0.4 ‐1% 0.3 0.2 ‐2% 0.1 ‐3% 0 1977 1980 1983 1986 1989 1992
Slide 15: But the Way It Inverted Is "Different This Time"
Blackstone Investment Strategy For Discussion Purposes Only But the Way It Inverted Is “Different This Time” Most recent inversion caused by long end falling, not short end rising Last Five Inversions Most Recent Inversion 20% 13.5% 1 0.9 0.9 3.0% 0.8 0.8 15% 0.7 0.7 Fed hikes rates and does not sto
Slide 16: Consumers Comprise 70% of the US Economy
Blackstone Investment Strategy For Discussion Purposes Only Consumers Comprise 70% of the US Economy Consumer income and spending continue to grow, as debt burden remains low Real Consumer Income Household Debt Payments as % and Expenditures(1) of Disposable Personal Income(2) 8% 1 13.5% 1 0.9 0. 6%
Slide 17: But Cracks Starting to Show
Blackstone Investment Strategy For Discussion Purposes Only But Cracks Starting to Show Growth in hours worked, payrolls, and job openings are all trending down Private Nonfarm Hours and Payrolls Job Openings, Total Private (YoY % Change) (YoY % Change) 3.5% 40% 3.0% 30% 2.5% 20% 2.0% 1.7% 10% 1.5%
Slide 18: S&P Earnings Expectations
Blackstone Investment Strategy For Discussion Purposes Only S&P 500 Earnings Expectations Narrowly avoided an earnings recession in 2019, poised to rebound in 2020 Quarterly Historical S&P 500 Data (1995–2020F) % Companies Missing Earnings Growth 45% 225% 30% 150% Projected(1) 15% 75% CY2019 1.8% 0%
Slide 19: Dividend Discount Model
Blackstone Investment Strategy For Discussion Purposes Only Dividend Discount Model(1) 1‐Year 10 Year Treasury Yield EPS($) 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75% 4.00% 152 7,340 5,409 4,282 3,544 3,023 2,635 2,336 2,097 1,903 1,742 1,606 1,489 1,389 154 7,437 5,480
Slide 20: III. Inflation and Implications for Fed Actions
III. Inflation and Implications for Fed Actions
Slide 21: Wages Growing at Fastest Levels since 2009
Blackstone Investment Strategy For Discussion Purposes Only Wages Growing at Fastest Levels since 2009 Strong labor markets should lead to further gains in wage growth Average Hourly Earnings Growth(1) (YoY % Change, 3 Mo Avg.) 5.0% 1 0.9 0.8 4.0% 0.7 0.6 3.0% 0.5 0.4 0.3 2.0% 0.2 0.1 1.0% 0 1987 19
Slide 22: Core Inflation Surprised to the Upside
Blackstone Investment Strategy For Discussion Purposes Only Core Inflation Surprised to the Upside Core inflation grew by the most this cycle, highest since 2008 Core CPI (YoY % Change) 3% 2.4% 2% 1% 0% 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: Bureau of Labor Statistics, as of 8/31/19. R
Slide 23: But Inflation Gains May Be Temporary
Blackstone Investment Strategy For Discussion Purposes Only But Inflation Gains May Be Temporary Markets and consumers think that US inflation growth will slow Breakeven Inflation Rates Consumer Inflation Expectations (as Implied by TIPS)(1) over the Next Year(2) 2.5% 3.0% 2.0% 2.9% 1.5% 2.8% 1.0% 2
Slide 24: Other Key Measures of Inflation Are Negative
Blackstone Investment Strategy For Discussion Purposes Only Other Key Measures of Inflation Are Negative Core price measures are declining; import prices may have troughed Core Import Price Index and Core Producer Price Index (YoY % Change, 3M Average) 2% 3.1% 0% 2.4% ‐2% 1.7% ‐4% 1.0% 2013 2014 201
Slide 25: US Rates a Global Outlier
Blackstone Investment Strategy For Discussion Purposes Only US Rates a Global Outlier US rates are highest in the world – markets are saying they are too high Percent of Developed Countries with Policy Rates Lower than the US 100% 80% 60% 40% 20% 0% 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991
Slide 26: Markets Have High Expectations for Fed Cuts
Blackstone Investment Strategy For Discussion Purposes Only Markets Have High Expectations for Fed Cuts Markets pricing in at least two more rate cuts through the end of 2020 Forward Rate Implied by Fed Funds Futures 2.5% 2.0% 1.5% 1.0% 1.12% 0.5% 0.0% 2015 2016 2017 2018 2019 2020 Actual Effective
Slide 27: IV. Global Economic Outlook is Dimming
IV. Global Economic Outlook is Dimming
Slide 28: Near-Term Global Growth Slowing
Blackstone Investment Strategy For Discussion Purposes Only Near‐Term Global Growth Slowing Growth forecasts for 2019 and 2020 have been further revised down Real GDP Growth (YoY % Change) Actual Forecast Actual Forecast 2018 2019 2020 2018 2019 2020 World 3.6 2.9 3.0 G20 3.8 3.1 3.2 Austral
Slide 29: No-Deal Brexit Would Be Costly
Blackstone Investment Strategy For Discussion Purposes Only No‐Deal Brexit Would Be Costly Without an agreement, UK GDP growth would be 2.5% lower through 2023 Impact on UK and EU Real GDP Impact on UK Real GDP through 2030(1) (% Difference from Baseline) (% Difference from Baseline) 0.0% 0% ‐1.0% ‐
Slide 30: VII. Long-Term Trends to Consider
VII.Long-Term Trends to Consider
Slide 31: President Trump Needs a Deal Politically
Blackstone Investment Strategy For Discussion Purposes Only President Trump Needs a Deal Politically For the past 100 years, no President has lost reelection if economy expanding No Recession Two Years Since WWII, Only Presidents with Rising before Re‐Election Unemployment Rates Lose Reelection Pres
Slide 32: Trade War with China
Blackstone Investment Strategy For Discussion Purposes Only Trade War with China China’s growth has been largely fueled by trade with the US Real GDP US Trade with China (Current Prices, $ in Billions)(1) ($ in Billions)(2) $30,000 $600 Projected $400 $20,000 $200 $0 $10,000 ‐$200 ‐$400 $0 ‐$600 200
Slide 33: Secular, Long-Term Slowdown in Global Growth
Blackstone Investment Strategy For Discussion Purposes Only Secular, Long‐Term Slowdown in Global Growth With labor force declining, productivity must pick up the slack Global GDP Growth(1) Global GDP Growth Components(2) 4% 6% Projected 5% 3% 4% 2% 3% 2% 1% Assumes 1.9% Productivity Growth(3) 1% 0%
Slide 34: US Accounts for Nearly 15% of Global CO2 Emissions
Blackstone Investment Strategy For Discussion Purposes Only US Accounts for Nearly 15% of Global CO2 Emissions Even if the US eliminated all CO2 emissions – it would remain a problem Share of World CO2 Emissions by Country 35% 30% 25% 20% 15% 10% 5% 0% China United European India Russian Japan Germa
Slide 35: Wealth Inequality Has Gotten Worse
Blackstone Investment Strategy For Discussion Purposes Only Wealth Inequality Has Gotten Worse Financial market gains have mostly accrued to the top 10% Financial Markets Have Created But Only the Wealthy Have Benefitted Immense Wealth (Assets in Corporate Equities and Mutual (S&P 500 Returns: 1988–
Slide 36: Debt Hasn't Been a Problem Because of Declining Interest Rates
Blackstone Investment Strategy For Discussion Purposes Only Debt Hasn’t Been a Problem Because of Declining Interest Rates Debt increased $19 trillion from 1988 to 2018 while rates fell from 8.2% to 2.4% US Federal Debt Outstanding and Average Interest Rate ($ in Billions) $24,000 9% $18,000 7% $12,
Slide 37: VIII. Byron's Life's Lessons
VIII.Byron's Life's Lessons
Slide 38: Byron's Life's Lessons
Blackstone Investment Strategy For Discussion Purposes Only Byron’s Life’s Lessons Here are some of the lessons I have learned in my first 80 years. I hope to continue to practice them in the next 80 1. Concentrate on finding a big idea that will make an impact on the people you want to influence. T
Slide 39: Byron's Life's Lessons (Cont'd)
Blackstone Investment Strategy For Discussion Purposes Only Byron’s Life’s Lessons (Cont’d) 7. Travel extensively. Try to get everywhere before you wear out. Attempt to meet local interesting people where you travel and keep in contact with them throughout your life. See them when you return to a pl
Slide 40: Byron's Life's Lessons (Cont'd)
Blackstone Investment Strategy For Discussion Purposes Only Byron’s Life’s Lessons (Cont’d) 15. Don’t try to be better than your competitors, try to be different. There is always going to be someone smarter than you, but there may not be someone who is more imaginative. 16. When seeking a career as
Slide 41: Disclaimers
Blackstone Investment Strategy For Discussion Purposes Only Disclaimers The views expressed in this commentary and the appendix hereto are the personal views of Joseph Zidle, Managing Director and Byron Wien, Vice Chairman in the Private Wealth Solutions Group (together with its affiliates, "Blackst