Back to a volatile future
In our 2022 Midyear Global Outlook, we discuss the end of The Great Moderation – a period of stable growth and inflation – and highlight the investment themes we are focused on for the second half of the year. We are in a new market environment – and we are now Bracing for volatility, Living with inflation, and Positioning for net zero.

Larry Fink on the Russia-Ukraine conflict
The Russian invasion of Ukraine has caused a massive humanitarian crisis and sent ripple effects across the global economy. Larry Fink, Chairman and CEO of BlackRock, discusses how this economic war is affecting existing supply chain disruptions, inflation and globalization.
SAMARA COHEN: Welcome to The Bid, where we break down what's happening in the markets and explore the forces changing investing. I'm Samara Cohen, Chief Investment Officer for ETFs and Index Investments at BlackRock and your host today. Over the past few weeks, the Russian invasion of Ukraine has caused a huge humanitarian issue and sent ripple effects across the global economy. On this episode, we're joined by our Co-founder, Chairman, and CEO of BlackRock, Larry Fink, to get his perspective on what's happening and how it's affecting the global markets. Please keep in mind, we're recording this on Friday, March 11, as the conflict enters its third week. Larry, welcome back to The Bid.
LARRY FINK: Thank you, Samara. It's great to be here.
SAMARA COHEN: Larry, the world has changed dramatically over the past two weeks. And although the world has unfortunately seen conflict and wars break out over the past 20 years, this one feels different. Why do you think that is?
LARRY FINK: Well, we've actually had many wars in the world over the last 20 years, in the last 30 years. But this is different because we have a principal nuclear power invading a neighbor. And in addition, this nuclear power, Russia, it actually invoked the words 'nuclear' as an offensive moment. And it was unprovoked. We were witnessing the horrific actions of a military war. We are witnessing each moment of the tragedies that are occurring throughout Ukraine, the humanistic tragedy of 2 and 1/2 million migrants, in which half of them now are children, the displacement of millions of people.
It's threatening the psyche of the world in so many ways because the world benefited, probably as much as any major geopolitical issue, when the Soviet Union broke apart. And it was the ending of the Cold War. And we were able to have this enormous peace dividend. So the peace dividend is over.
Over the last 30 odd years now corporations worldwide expanded geopolitically and expanded in different geographies. We built this whole foundation of globalization. We built these global capital markets. But the foundation of how we constructed the global model is now over. It's broken down. Now we're trying to reassess what does it mean for the future. And we don't have enough answers yet because we don't know the outcome. How do we move forward as companies, as countries. I've been on the calls with many CEOs today and yesterday and every day since the invasion, and I'm hearing from fear to concern, but most universally is this uncertainty. What does it mean? What does it mean for globalization?
SAMARA COHEN: Let's talk a little bit more about your point on global capital markets. Russia was given access to global capital markets as the world emerged from the Cold War. And now Russia is pursuing a traditional war, but the response of the capital markets is anything but traditional. So what are your thoughts on the markets?
LARRY FINK: Well, as I wrote in my CEO letter earlier this year, I stated that access to the global capital markets is a privilege. It is not a right. And I think this has been exemplified by the behaviors of the private sector. We've created in two weeks an enormous change. And we're witnessing now that an economic war can be as fulsome as any imagination could ever achieve. This economic war is not something that one should take lightly. It changes the future of Russia. And I don't know how we reverse this. It is in many ways a really important statement to see how corporations are really embracing stakeholder capitalism here because so many companies have been bombarded by questions by their employees, by their clients, by different customers worldwide. What are you doing about this? And the behaviors of the private sector have been just as broad, impactful as the governmental sanctions.
So when you think about it from the government sanctions to the impact by the private sector of the abandonment or cessation of business in Russia, it really does show the power of the capital markets. And now denying capital, it shows the power of, I would say, capitalism. We are going to expect to see in every first quarter result by many companies that they're going to have an impairment charge from the abandonment of Russia. It's a one-time thing. So it's recalibrating a lot of companies. I applaud the fortitude of management teams of companies and boards in these actions. I think this just really shows the power of one capitalism, but the power of the global capital markets, but importantly, the power of capitalism focusing on their stakeholders.
SAMARA COHEN: This is a global economic war. But the main theater of war is actually happening in Europe. What will be the impact for global growth, but more specifically European economic growth?
LARRY FINK: What you're seeing is the economic response that is so immediate and so quick. And I think it's going to be so impactful. And I do believe it is going to-- I think this is a reminder to every country, as it is a reminder of every company, access to capital is a privilege, not a right.
In the short run, it's obviously quite impactful on the negative side. Consumers are going to be feeling the pain of rising energy costs and rising food costs. But finally, I am optimistic about what it means for Europe. Samara, post-invasion, we've seen a total change in the behavior throughout Europe. The unification of Europe feels more real right now than it did before. Germany has announced they're going to raise their defense spending to 2% of GDP. This is actually what the Americans asked for a few years ago under President Trump. Hopefully other parts of Europe will be advancing. They're moving towards more renewables, especially in parts of Italy where the sun is pretty prevalent there. And so all of this means more fiscal spending, more deficit spending. And I look at this as a real net positive. And so, in the short run, we are going to have slowing global economies. But in the long run, it's going to be offset by rising fiscal stimulus again, as we witnessed during the COVID years, how much fiscal stimulus we saw to stabilize the global economy after a couple shocks in the economy and negative GDP.
I think we have a number of years of recalibrating what this all means. But the Europeans really have been quite aggressive in reasserting themselves to be less reliant on Russia. They're reasserting themselves through fiscal stimulus. And I think you're going to see monetary policy be much more muted than we thought prior to the invasion.
SAMARA COHEN: Larry, you mentioned the impact for companies in the private sector who are taking actions beyond the government sanctions. How do you think what's unfolding now adds to the preexisting concerns over supply chain issues? Do you think that there's a growing concern to watch around supply chains?
LARRY FINK: I think this is going to be the biggest question that is going to be discussed, the biggest issue that we're going to be discussing. So, we are refocusing on our dependencies in Russia. I think the whole world is focusing on dependencies now, the dependencies to China, as a manufacturing and assembly. I also believe the world's refocusing on the dependencies on the US dollar. And I've heard from a couple of finance ministers, should the world be this dependent on one currency? And so I actually believe we are going to reassess everything. A lot of this is more of an anti-global position.
But let's get back to the supply chain. I think as companies reassess their dependencies, they're going to be saying that maybe we are too dependent on one place. Maybe we're too dependent on China or something else. And they're going to be reanalyzing their supply chain. I talked to one CEO today that has systematically been mitigating their dependencies on China. And they've been moving more and more supply of chains into Mexico. And he said, now our biggest source of manufacturing is Mexico than China. So we're seeing this whole recalibration. And this recalibration is going to really determine how we go forward.
SAMARA COHEN: Larry, I think related to supply chains, you used the word deglobalization a couple of minutes ago. Can you say a little bit more about that path and what you mean?
LARRY FINK: Well, as I said, with a peace dividend of the end of the Cold War, we were able to build a global network. And globalization was the key, I would say economic policies, that people expanded and built. And globalization actually had many positive benefits. Right now it's not being discussed. More human beings were lifted out of poverty over the last 32 years than any period of time ever. And that was because of globalization.
We learned from COVID that supply chains were maybe only good in very efficient times. We learned that many supply chains would not function as well when people were-- when COVID hit a country and they had lockdowns and they could not have workers at a factory or in the shipping components, and we witnessed huge supply chain issues. Now much of the supply chain issues we witnessed was as people were more in remote working, more and more people changed their consumption patterns away from services. We traveled less. We went to fewer restaurants during that period of time. But we spent our money on capital goods. And so much of the supply chain issues was we miscalculated how much demand there was going to be on so many products.
I think now with looking at the dependencies of Russia, focusing on the dependencies on other parts of the world, whether it's at China or somewhere else, I think there's another reassessment of the supply chains. And does it mean a deglobalization? Probably it does. When you talk about onshoring factories or nearshoring factories, that in itself is a deglobalizing process. And so, because of the rise of nationalism, the rise of geopolitical tensions, and the need to have better supply chains, it means everybody's bringing them closer to where demand is. And that is a big reversal in how businesses built their platforms and businesses. And so a lot of that is being reassessed. And it does on the margin mean less globalization.
SAMARA COHEN: Does this rewiring of the global economy that you're describing impact your assessment or the CEOs and policymakers that you're talking to, their assessment of inflationary pressures here and how businesses and consumers will navigate them?
LARRY FINK: You know, Samara, post-World-War-II United States economic policy was based on consumerism. It was the foundation of-- and that was coupled with globalization. And so, we were able to maybe move manufacturing somewhere where we were able to provide cheaper products, more products to more Americans. I would say sometime in the last 10 years that whole foundation of providing the cheapest products to more Americans has now been reconsidered. Jobs are now considered to be more important than cheaper prices. I think that is inflationary by itself.
I've always said, if we are going to move to a decarbonized world without new technology that is highly inflationary, we are now witnessing that today. This is why I've always been saying a transition from hydrocarbons to something more sustainable has to be done in a fair and just way. And quite frankly, even before the Russian invasion, many countries were focusing on supply mitigation versus demand mitigation. And so, we were witnessing rising energy prices even before the Russian invasion. All of these are more incrementally inflationary, and what's much more inflationary would be if one has to now re-footprint supply chains maybe to a higher cost area, but it's nearer, with more consistency, with more certainty. All of this leads to higher inflation and that’s one of my bigger worries today.
Now, in the long run, though, as we build out these redundant supply chains, as we become less dependent, in theory this actually, at the back end, could be deflationary. And a supply shock that we're witnessing is hard for any central bank to mitigate. So if you believe that much of the inflation is because of supply shock, you're going to probably expect fewer central banks tightening, even in this inflationary environment because that supply shock, ultimately, can be worked out. Maybe it's three years, or four years, or five years, but it can be worked out.
And let's be clear, higher energy prices accelerates the demand for decarbonization, accelerates the need for EV vehicles. And so that's a way you mitigate long-term demand through that process. And so all of this is equalizing. We may be in a period of time of higher inflation that is going to be very damaging for those who least could afford it. Higher inflation is destructive for the entire emerging world. This is why I have always said, it has to be fair and just. And right now we're not in a fair and just period of time.
SAMARA COHEN: Larry, thank you so much for your time and for your insights and for joining us today on The Bid.
LARRY FINK: Well, I want to thank everybody for listening. These are terrible times, what we're witnessing in these humanitarian disasters. But we all should be hopeful that as human beings we do find solutions. And this has not abated my long-term optimism, that we find solutions, we mitigate problems. And through that process, we have a better future.
SAMARA COHEN: Thank you, Larry.
LARRY FINK: Thanks, Samara.

Russia-Ukraine crisis shakes markets, stay focused on the long-term
Staying invested and seeking resilience can help investors navigate the volatility in the markets driven by the Russia-Ukraine conflict.
