BlackRock’s Fink Sees Inflation Risk in Slow Data-Center Buildout

[00:00:00] Larry: First of all let's start with markets markets. Where do you see interest rates going. I think there's a huge competition as I wrote in an op ed last week that there's huge competition for capital. We are starting to see the effect of this accumulative of our federal deficits in the U.S. we're starting to see the impact in other democracies at the scale of the deficits are becoming crowding out. We're at a time now where we're finally unlocking private capital. And so the competition or capital is as large as I've ever seen in my professional career. If you listen to the hyperscalers in the United States alone they're talking about a need for seven to nine trillion dollars to build out and to ensure that the United States is a leader in AI. That type of financing that type of funding on top of the financing for the federal deficits is putting the term premium to be higher. And I think we're going to see that term premium higher. In addition there's a push and a pull in this. If we don't build out these data centers. It is actually more inflationary because the cost to compute is so high right now. And the faster we can build up more data centers and more compute we have the faster we can bring down the cost. So the irony in the short run. People are frightened of the impact of data centers in the community. Much of it is misinformation. But but the but the tech companies and the builders have to do a better job working alongside each and every community. Larry last week. I mean you were saying the moratorium on data [00:01:34] Speaker 2: centers could put the country in a recession. Are we really that dependent about two thirds of the U.S. economy is capital expenditures right now on [00:01:43] Larry: on technology whether it's cloud for whether it's AI whether it's just a capex of making sure that you're competitive. And if we slow down of the build out of this technology I think it really does jeopardize the economy. It means we're not going to build these. It means we're building them elsewhere. You have you have Canada. Now you had Mark Carney announced just about a month ago the changes of permitting reform in Canada whereby at the federal level to provincial level the local level a one year term for for permitting which is a very fast permitting process by any imagination. And they were talking about building 20 gigawatts of of renewable power in Nova Scotia and Newfoundland. If that happens. OK we can't build them in the United States. You build them in Canada. So there is competition for this. You have also India talking about that. They want to be a destination for data centers. Abu Dhabi will become a very large destination for this. So let's be clear for the U.S. to be a leader in this technology which we are today. We also have to be the leader in the compute [00:02:55] Speaker 2: the inference in our own nation. We're a week away from the midterms. Do you worry that kind of political gridlock actually puts in jeopardy the advancement of energy needs and data centers. Well I think some of the politicians are correct in asserting that we're going to be [00:03:12] Larry: about building data centers. You've got to secure your own power. You cannot put any tax on a community. I agree with that. You have to make sure that you have the newest technology with the data centers that you're not using all the community water that you have a closed system of water. So a lot of this is just misinformation. But we have to address this. And I think if we're addressing this we'll probably have less of a gridlock on this issue. What are you expecting in the midterms that I mean this policy change after the midterms in the U.S. I just hope after a midterm that we get back to business as a country. We've stopped talking about the electioneering process. We focus on everybody's long term needs. Look at most Americans are uncertain about the future. We need leadership to calm down our population and showing them why they should be calmer. We should give them hope. And I think the elections right now are all about the fear of the future. The fear of the children's job security prices food inflation housing inflation. So there's a lot of fears going on. And everybody said I can't control this. I'm frustrated. I'm frightened. And so what you know what we need after the elections. We need people addressing each community and telling them why it's going to get better. And here's what we're going to do about it. We can do that. The growth of America will be as solid as ever. Larry how is BlackRock getting ready for the future. Well as you know we're you know we're the largest retirement manager in the world. We focus more on the long term. We're not focusing on the day to day. I don't care what the markets are doing. I don't focus on the ups and downs at all. I think it's real noise. I mean an interesting fact that I like to tell everybody if you invested in the S&P over the last 25 years and you went on vacation for 25 years and you learned how to be the best rock climber or the best whatever you wish you would earn 11 percent compounded return. 11 percent doing nothing by enjoying your life. If you were if you believe you're smarter than the market and you were out of the market for 10 days just 10 days. Your return was down to 6 percent. If you were out of the market for the 40 top days out of 6300 days you had a negative return. And so all this tells me is all this ups and downs and noise. What's happening. It doesn't truly matter for the [00:05:50] Speaker 2: average person. And there are even global bond yields because there's alarm bells there. They're flashing something. And at some [00:05:57] Larry: point will it not come to roost. They're flashing that the saying OK wake up federal government. Our deficits are starting to have real large issues. But I tell every politician we need to grow our economy by 3 percent a year to make the debt to GDP to shrink. Look at. But each country has different issues. We're sitting here in Germany. They have a debt to GDP of 60. I can sit here and talk to the federal government here and say I'd be doing a little more fiscal stimulus to you know to really get this economy going. And it finally is starting to lift GDP. But in Japan I'd be telling the political leadership embrace the new technology. You have a debt to GDP of 230 percent. You have a very fast aging population. If you adapt quicker than any other nation in terms of robotics and AI you are going to increase productivity and you're going to grow out of the problem of your debt to GDP. So there's not one solution that's fitting any one nation. And I think we have to look at this and try to come up with the best strategy for each and every [00:07:07] Speaker 2: country. I know last week on the earnings call you said something that got people talking Larry as always. You said Blackrock is in the [00:07:14] Larry: market with a major transaction. What can you clarify. More. More and deeper conversations we've ever had in the history of the firm. Whether it is working with hyperscalers related to the financing of data centers. But we're working with other companies on how how to how to how to rebuild trust with their workforce. There are many areas in the country where the workforce only has a defined contribution plan. They don't understand it. They don't understand what that means when they retire. We created a product called Life Path Paycheck. Yeah. Where the where the participant gets a paycheck when they retire. And that is having a huge impact on the future of retirement. Having people have more security when they have retirement. And I believe this will become the default product for defined contribution plans. But even in places like Netherlands you know they're moving away from the traditional government oriented defined benefit plan to a defined contribution plan. And Blackrock was awarded as a preferred vendor. This 80 billion dollar contract that moved the Dutch pension fund community from DB to D.C. And now we're trying to help them [00:08:32] Speaker 2: understand that. How does AI actually change the way we'll retire. I mean how much do you think about the fact that our societies will change fundamentally with AI. And so the way we invest the way we consume the way we retire changes. Technology changes shape our [00:08:49] Larry: lives in so many wonderful ways. I mean I think think about just think about your life before you had a smartphone. A smartphone was spread in 2012. It wasn't that far ago. And now it is the most important device in your life. Ignorance was bliss. Ignorance was bliss. Ignorance was bliss. Now think about OK. If you travel to Kenya and travel around the world you you're not now in an area where you can't communicate with everybody. You can use Starlink and commute and have a conversation anywhere in the world. And all this technology is actually wonderful. We're going to create new technologies to make health care easier. We're going to have higher probability of living longer. These are blessings. We're not talking enough about the blessings. In addition you know we launched in Europe in the United States. We launched in Canada. Now we're launching in Germany. Future builders. Yes. We have shortages of workers in Germany. We have shortages of skilled workers in the United States and in Canada. You don't hear enough about that. You hear about all the negative. But in Germany and the U.S. we both have approximately 4 percent unemployment. And on top of that we have huge labor shortages. And so that just informs me that a we need to be educating our workforces more to give the opportunity to have these incredible jobs. But it also informs me unless immigration policies change we are going to have to more rapidly adapt to using more robotics and AI as a society.