Investopedia: Blackstone Group Warns of the Mother of All Bubbles

November 12, 2019

Article by Mark Kolakowski in Investopedia

The Blackstone Group Inc., one of the world's largest private equity firms with $554 billion in total assets under management, sees growing risks for the markets right now, including a largely overlooked "mother of all bubbles."

Moreover, there actually are troubling linkages between several negative developments that, on the surface, appear to be random and unrelated, warns Joseph Zidle, chief investment strategist at Blackstone's private wealth solutions group, per a detailed Business Insider report that is summarized below.

"The failures in the repo market, negative-yielding debt, a deeply negative term premium, trade conflicts around the world and a collapse in manufacturing all seem unrelated right now, but I don't think they are random," Zidle wrote in a recent note to clients. His biggest concern is negative yields on sovereign debt worth $13 trillion, what he believes may be "the mother of all bubbles."

Schwarzman has similar concerns about interest rate cuts by the Federal Reserve. “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 rhetorically during a recent interview with MarketWatch. “If you push down [interest rates] too much, you create the problem you are trying to solve,” he continued, indicating that low rates are hampering economic growth, in his opinion.

Schwarzman also worries about slowing economic growth and rising numbers of IPOs from loss-making companies. As recently as 2018, he notes, the world economy still enjoyed largely synchronized growth. Now most countries are in slowdowns. He calls IPOs from unprofitable companies "signs of excess" that often accompany the late stages of an economic expansion. Indeed, large numbers of unprofitable companies going public also marked the dotcom bubble, per a report in Bloomberg.

Harris Kupperman, president of Praetorian Capital Management and CEO of Mongolian Growth Group, has similar concerns. "When you push liquidity through the system like they [the Fed] have the last ten years, you create a giant bubble," he told BI in an earlier report. "I've been through 2 crashes in my life, and I think this is the third one," he added.

To read this article in Investopedia in its entirety, click here.

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