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Blackstone's Stephen Schwarzman: 5 Worries to Keep Investors Awake

Blackstone's Stephen Schwarzman: 5 Worries to Keep Investors Awake
Stephen Schwarzman CEO of Blackstone (AP Photo/Markus Schreiber, File)

By    |   Wednesday, 02 October 2019 09:59 AM

Blackstone Group co-founder and Chief Executive Stephen Schwarzman has a handful of concerns he thinks should be keeping investors awake at night.

In his new memoir “What It Takes,” the private-equity titan advises readers that worrying “is playful, engaging work that requires you never switch it off.”

He recently told MarketWatch that this approach helped him to protect Blackstone (BX) investors from the worst of the subprime real estate crisis.

Schwarzman’s first concern is the manufacturing sector, which is “basically contracting around the world.” He not only cited troublesome Chinese data, but weak U.S. metrics as well.

“If they can’t accumulate capital, they can’t expand and extend credit to companies,” he warned of American companies.

He also fears that the Federal Reserve might be headed down a similar monetary path as Japan and Europe, after announcing interest-rate cuts in back-to-back meetings. “Interest rates are historically low in the United States, and you keep driving them lower, where do you get? What’s the objective?” he asked.

For his third concern, Schwarzman worried that it is low interest rates specifically that are responsible for weak economic growth. “If you push down [interest rates] too much, you create the problem you are trying to solve.”

His fourth concern is that the global economy has shifted from synchronized growth as late as 2018 to a period in which expansion is receding as if there was no end in sight. “Most of the major countries around the world have slowing economies,” he said.

Finally, he said the recent travails of some tech companies in public markets—including Peloton Interactive ’s (PTON) disappointing launch Friday and WeWork parent We Co.’s decision to scrap its IPO indefinitely, amid the steady slide of ride-sharing stocks Uber Technologies (UBER) and Lyft (LYFT)—are “signs of excess” that are typically associated with the late stages of an economic expansion cycle.

Schwarzman, meanwhile, remains an optimist about the long-term health of the U.S. economy. He said there are “great fundamental” conditions for the next wave of entrepreneurs to make their mark.

“You have a ton of money available for investment, more than ever,” he said. “Entrepreneurial activity is in fashion. You see [students] at universities and even at large companies people have a bias toward starting something new.”

He isn't the only respected economic voice to caution investors to be on hightened alert.

Nobel-winning economist Robert Shiller warns that history just might be on the brink of repeating itself because of investors of today haven’t learned anything from the lessons of the past.

Shiller, who helped develop the widely-followed S&P/Case-Shiller Home Price Indices, said he notices certain similarities in today’s housing sector to the run-up just before the Great Recession.

“Housing is driven by narratives. Before 2007, the narrative was flipping houses [and the belief that] home prices have always gone up,” the Yale economist told Yahoo Finance’s YFi PM.

“Then, after the Great Recession, it was tragic narratives about people who lost their home, or dangers of borrowing too much or lending too much," said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.

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Blackstone’s Stephen Schwarzman: 5 Things Investors Should Worry About
blackstone, stephen schwarzman, 5, investors, worry
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2019-59-02
Wednesday, 02 October 2019 09:59 AM
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