International Man: With nearly $10 trillion in assets under management (AUM), BlackRock is the world’s largest asset manager.
The company exploded in size after the 2008 financial crisis, and that’s no coincidence.
Central banks around the world have printed scores of trillions since then. A significant portion of that freshly created money eventually found its way into the stock market, specifically BlackRock’s exchange-traded funds (ETFs).
BlackRock was also responsible for helping the Federal Reserve manage its massive debt portfolio after 2008. It’s another indication of BlackRock’s cozy relationship with the government.
BlackRock is a good illustration of the Cantillon Effect—those closest to the money printing benefiting.
What do you make of the rise of BlackRock?
Doug Casey: In a way, BlackRock mystifies and amazes me. It came from ground zero in the late ’80s, started by Larry Fink and a few of his friends. How did they manage to garner $10 trillion and become the biggest financial management entity in the world? Are they super competent, or just super well wired with the Fed? They’re certainly competent at garnering funds. But they’re absolutely “connected.” In today’s world, where governments, directly and indirectly, control everything, rest assured that the top guys in BlackRock are charter members of the Deep State.
As money managers, they’ve essentially put themselves in a position to collect a royalty of 10, 20, or 30 basis points—and sometimes 1%—on the assets under management. It has to be one of the best businesses in the world because BlackRock has only something like 1,800 employees to manage $10 trillion.
Interestingly, despite its spectacular growth, its publicly-traded stock hasn’t been that spectacular of a performer. The stock has only been a 10 to 1 shot over the last decade, which is great, of course, but in the super bull market we’ve had, it’s not a real stand-out. I don’t know what they do with all the money that comes in monthly from basically collecting a royalty on all these assets. But you’d think it might have done better for something that’s overshadowed Goldman Sachs, the giant vampire squid. It’s now something even larger, something the size of the Kraken.
I have no problem with size per se. But in today’s overfinancialized economy, BlackRock does more than collect royalties for providing a service. The problem is that the ETFs, mutual funds, and pensions it controls, vote the stock of public companies. That means they can install the directors they like, who then move the companies in the directions they like.
They have a big emphasis on ESG (Environment, Social, Governance) and DIE (Diversity, Inclusion, and Equity). As a result, corporations are reorienting themselves from maximizing profits—by giving the public what it wants—to maximizing PC and Woke ideology.
There is currently about $500 billion in funds that overtly tout their ESG orientation. The public has been convinced that they should put money in those funds in order to virtue signal, be righteous, and save the world. In fact, however, ESG acts to destroy wealth. It’s another reason the economy and the markets are in for some very rough times.
International Man: BlackRock’s ETFs own large positions in many publicly-traded companies.
BlackRock uses this to promote an agenda that might not align with the retail investors who own shares in BlackRock ETFs.
CEO Larry Fink once dubiously claimed that “no issue ranks higher than climate change on our clients’ lists of priorities.”
The Fed’s money printing has helped to pump up BlackRock’s AUM, which the company uses to advance a political agenda.
What is going on here?
Doug Casey: BlackRock is a perfect example of why money printing and central banking always cause the rich to get richer. Not only do they stand closer to the money spigot, but they’re well-connected to do favors for government officials. And the favors are returned. As excess money is created, lots of it flows into the stock and bond markets. But the average guy doesn’t know what stocks to buy, so he relies on these money managers.
That partially accounts for the success of ETFs, which hold around $6 trillion of assets, and where BlackRock is also the biggest player. Who wants to read thousands of annual reports, 10-Ks, and press releases? It’s easier to be “in the market” with a fund of some type. It makes things simple for the average guy. But it’s devolved a huge amount to power to the managerial class. And in today’s world, they appear more interested in ideology than maximizing returns.
Apart from that, these funds have become so huge that it’s hard to maximize returns. They can’t buy small entrepreneurial companies that might offer big returns. They’re forced to buy giant companies managed by “suits” like themselves. It’s at a point where the over-financialized world is in a self-reinforcing feedback loop emphasizing size, not value.
Although there are significant economies of scale, after a certain point, anything can become so big that it’s just unmanageable. My guess is that BlackRock has reached that point. That’s not to mention that the stock and bond markets have become grossly overpriced. We’ve had a 40-year bull market in both, and the last half of it has been supercharged by funny money. At this point, more than ever, the markets are a big accident waiting to happen.
So I wouldn’t worry too much about BlackRock itself. By the time the current bear market bottoms, people won’t even want to know stocks exist. And they’ll hate big-money managers. Hopefully, BlackRock has sown the seeds of its own destruction.
On another note, you don’t want to own ETFs anyway. Sure, they save you the time and research necessary to buy individual stocks. But now might be a good time to increase your level of personal responsibility. Try to learn how to pick smaller individual companies, the kind that are too small for the BlackRocks of the world to buy. Don’t rely on an ETF. They are, in effect, just grab bags of the biggest—not the best—companies in their area.
International Man: BlackRock has been the biggest and most influential player pushing ESG in the corporate world. If it weren’t for BlackRock, ESG would not be as prominent today.
Recently, the SEC announced it would impose ESG standards on publicly-traded companies—a development that will no doubt please BlackRock.
What is your take on BlackRock’s dominant role in promoting ESG?
Doug Casey: It’s quite a problem. When a giant institution owns a substantial portion of the shares of any publicly-traded company, they’re in a position to put in the kind of company directors they want. And today, many or most are diversity hires.
Running a company according to the principles of ESG is courting disaster. It’s part of a whole complex of collectivist ideas which have washed over the world like a wave of raw sewage.
It’s not just a matter of BlackRock making a lot of money on what are effectively royalties on the stock market as a whole. The problem is that BlackRock, in particular, has especially toxic values. They’ve long been leaders in promoting ESG and DIE, using their share stewardship to elect the kind of board members and management teams that are guaranteed to run companies into the ground. It’s part of why companies like Shell and BP say they want to get out of the oil business and why Disney is making unwatchable movies with values antithetical to those of traditionally oriented Americans. The acceptance of ESG and DIE gives immense power to people with anticapitalist mentalities. It’s quite perverse.
International Man: BlackRock seems to be less an entity of the free market and more of an expression of the merger between Big Business and Big Government.
What do you think?
Doug Casey: BlackRock is actually Mussolini’s wet dream, given reality on a grand scale.
The dominant economic and political philosophy in the world is fascism—and this includes the US.
Fascism has nothing to do with jackboots, spiffy-looking uniforms, and midnight knocks on the door.
Fascism is an economic system. The word was coined by Mussolini. Its symbol is the fasces, which is an ax representing the State, surrounded by rods which represent corporations. They reinforce each other.
In socialism, the means of production are owned directly by the State. Fascism retains large corporations, however. They support each other. It’s a more efficient arrangement than socialism. Corporations still make profits, so the economy can still grow. There’s more money to steal than with pure socialism. The rich and powerful keep each other’s nests feathered.
This is true everywhere. China, the US, Europe, and Russia have essentially similar economic systems. Fascism now rules the world. Terms like communism, socialism, democracy, and capitalism are really just meaningless and confusing anachronisms.
We have no real capitalist countries in the world today. Nor are there any socialist countries in the world today, with the exception of a few anomalies like Cuba and North Korea. “Communist” China is ruled by an organization called the Communist Party, but it has nothing to do with the system called communism.
Here in the US, the Biden regime is creating an ideal environment for fascism to pullulate and mutate, an environment where creatures like those in Washington become ever richer and more powerful. Politicians, lobbyists, corporate grifters, NGO hustlers, court intellectuals, and the like hook up with the government and the Deep State to become very rich within the law by using what appear to be market processes.
The situation is bad, and I’m afraid it’s going to get worse for some time. It’s one among many factors that will make the 2020’s the most tumultuous decade in, at least, living memory.
Doug Casey: As I look at the spirit of the century so far, it doesn’t have a friendly face.
It seems to me all the world’s institutions have become too big for their own good. That certainly includes governments and big corporations, which directly control most of the world’s economy. There’s a revolving door between big corporations and the State, universities, NGOs, and the media. I’d argue that the world’s superstructure has become too big, too unwieldy, too concentrated, and too top-heavy. That’s made it very unstable.
Meanwhile, more and more of the middle class—which has always created all the wealth—is sinking into the lower class.
BlackRock and what it represents are symptomatic of the problems in the world today. A pox upon it. It has nothing to do with capitalism and free markets.