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Below is the transcript of a CNBC Exclusive interview with Tony James, Executive Vice-Chairman, Blackstone Group. If you choose to use anything, please attribute to CNBC and Martin Soong.

Martin Soong (MS): Tony James, Executive Vice Chairman at the Blackstone Group joining us live out of New York. Tony, great to see you and hope you’re keeping safe and thank you for staying up to talk with us. So, let nature take its course, if the Fed were not there, if fiscal stimulus were not there, what do you think would happen to markets?

Tony James (TJ): Oh, I think we’d have a major meltdown. The Fed moved with unprecedented size and speed. I think it was the speed in some ways more importantly, but massive stimulus. Without that, there was serious risk of the spiraling down into kind of a depression and when you start having that and credit problems, you could ripple through markets very quickly.

MS: So, here’s the thing, Tony I think markets are already starting to price-in the lack of stimulus that we will not get further stimulus before the end of the year. That takes us through of course the November 3 elections. The fed on the other hand, you know, they’re sitting, huddling, we’re hearing that they could be buying the long end of the bond market to flatten that curve, is that the right thing to be doing?

TJ: Well, I think the consensus is we should have more stimulus. I think both parties want more stimulus, the White House certainly wants more stimulus, if nothing else for the election. But absent stimulus, I think the Fed’s gonna feel more pressure to move. Now, short rates are already near zero, so the concern would be that eventually we get some inflation and that would affect long rates. So yes, in a nutshell, I think in the absence of stimulus, the Fed, keeping that yield curve at the long end down, is helpful.

Sri Jegarajah (SJ): Tony, there remains a very stark disconnect between Wall Street, and we’ve seen all-time highs in the middle of a pandemic, and main street economic fundamentals, I’ve got to say still look quite shaky. And many Americans are waiting for their next stimulus checks. Is excess liquidity part of the problem here, is that creating this divide and are the Fed arguably to blame for this?

TJ: Well, Sri, let me rephrase that. Simple answer is yes, but let me rephrase. I’m not sure excess liquidity is how I’d phrase it. I think zero interest rates is the driving force here, near zero interest rates and there’s a hunger for yield. So investors are coming off the sidelines, there’s still a lot of money on the sidelines, actually, and looking for investments where they can get some kind of return. They’ve piled into government bonds. Now they’re piling into riskier bonds and spreads or spreads are coming-in even further and will continue to in my opinion, but at the same time, they’re moving into equities because there’s just nothing else you can put your money where you’re going to get a return. So yeah, I think zero interest rates, near zero interest rates are the driver here. Is that excess liquidity? Or is that an appropriate amount of liquidity for the problem we’ve had? I think you’d have to give the fed a lot of credit for managing this problem and stopping it from spiraling out of control.  So, I don’t think it’s excess liquidity, but it’s abundant liquidity for sure.

SJ: And notwithstanding last week’s correction, the markets continue to climb the wall of worry. Do you think that there is still too much euphoria in the markets, especially when you look at the NASDAQ and the big cap tech and the valuations, still looking arguably quite stretched? All in all, do you think this is a market that is really still under-estimating the risks that are out there?

TJ: Well, for sure the market feels very fully valued. In my opinion, it’s a little ahead of itself, but I think it’s supply and demand, as I say capital continues to run in there. There’s also a little bit of a fear of missing out, a little FOMO in there, where everyone’s made a lot of money in the market this year and people are piling in. And so I think in the short term, those, you’ll continue to have that momentum. Long term, though I think the market will feel very full over a sort of 10, five to 10-year horizon. I think this could be a lost decade in terms of equity appreciation, both because at some point we’ll have interest rates normalizing somewhat, or at best stopping further decline on the one hand, and then there’s plenty of headwinds for corporate earnings, there’s higher taxes, their operating cost because of COVID are up, their supply chains are going to be less efficient, deglobalization will hurt productivity, state and local employment will be under pressure because of the deficits. All of that will be economic headwinds for companies, so I think you can have disappointing long-term earnings growth with multiples coming in a little bit. And I could see anemic equity returns over the next five to 10 years.

MS: Yeah, anemic equity of returns, which is pushing a lot of money to take on more risk here, or basically just to scour Tony’s talk about your business, if we could get back to stimulus and talk about the issue of infrastructure. I mean, boy, in terms of stimulus, if the US could use something infrastructure would be great. We’ve been talking about it for years, still hasn’t happened yet. You’ve got the 10 to 60 basis points. It sounds like it would be just the perfect time to get infrastructure going. But yet it is not. I know that one of your concerns, is that in the US, PPP, public private partnerships, just for whatever reason, haven’t caught on, what do you do?

TJ: Yeah, Martin that’s a great question. I mean, in general, when interest rates are zero, that’s the time you want to build social infrastructure with very, very, very long lives because with more normal returns and rates, you can’t really afford for it. And certainly it doesn’t pay off over decades. So, I think it’s a great question. The problem with PPPs in America is political. it’s not economic. And, you know, both parties agree they’d like more infrastructure. But the how you do it, is the question. Does the government give subsidized loans? Does the government build it? Are they PPPs? And we can’t seem to get agreement on that. In fact, in the United States, we can’t seem to get agreement on much of anything truthfully. But this is a knotty question. And this is the kind of thing where, instead of a highly polarized government that doesn’t want to work together at all. You really need people coming into the center and working together on it in a cooperative way. And I think infrastructure, is the easiest area to see that happening in the United States because there’s so much obvious need, and there’s so much, it creates immediate jobs. It pays long term societal dividends. And it makes America more competitive economically. So, it’s a win, win, win for both parties. But the how is a problem. And the other problem is, the infrastructure is built and owned locally by local state and governments. And it’s very hard for the federal government to push that down. And then you get all kinds of regional politics, so we have some structural issues.

SJ: Absolutely, Tony, and of course, there’s this central issue of how it gets funded as well and possibly we can discuss that later on the program with you. Tony James will be staying with us for more.


SJ: Let’s get back to the Singapore summit and our guest Tony James, Executive Vice Chairman at the Blackstone Group. Tony, just a couple of questions on corporate activity and M&A deal flow. We have seen a flurry in that space. What is that telling you? Is it telling you that the coast is clear, and confidence is returning and just give us some insights as to how you’re deploying capital, not only in this region, but I gather you got eyes on the UK as well.

TJ: Yeah, I think business confidence is pretty high. They have very low-cost currency. Think about it that way. They can borrow an immense amount of money at a very low cost, and their equities are high. So, if you’re going to go out and buy something, now’s a good time in terms of your cost to capital. At the same time, I think one of the things that happen out of COVID is, the winners win bigger. There’s an awful lot of consolidation. The leaders in a sector are pulling away from the also-rans. They were the companies that could afford to invest in new products, R&D, new capex, customer relationships, keeping their employees and all that. So, it’s dividing the haves and the have nots. And I think it’s also, you know, fueling big companies, tech disruptors and so on over, small and medium sized enterprises. So for all that, we’re in a bit of a world where the winners have access to great amounts of cheap capital. And it’s a time where they have been rewarded through consolidations. And every time you see an announced merger today, both stocks go up. So, I think the markets are rewarding that kind of activity.

SJ: Yeah, so tech and healthcare. To your point, Tony, we expect to see more of those spaces. But if take a step back here, does it strike you as somewhat absurd that one of the most talked about and politicized and controversial potential deals revolves around a social media app and that is TikTok. What does that tell us about what is defining the M&As landscape, how politically charged this is and what do you think is the likely endgame in that particular story?

TJ: Well, you know, I’m not that close to that. I do think it tells me that the tit for tat, which between the US and China is getting to a sort of a ridiculous level. And I think that’s dangerous. I’d like to think that the two countries have more in common over the long term if they can reset the relationship. Rivalry is one thing and I think that we can be rivals in a commercial sense and we can be counterparties or customers and suppliers in a very positive way and we can be partners solving things like global warming, and we don’t have to be joined at the hip. But I worry about the drift here, leading to the possibility of misunderstandings, emotion, ego, politics. In our election, China is a rallying cry for both parties right now, unfortunately. So I do worry about that, that TikTok is just an example of that. On the other hand, when people are sitting at home, delivery of entertainment, communications, connectivity or anything else, education, is by virtually, is booming. So it does not surprise me at all that an entertainment app or a dating app or whatever, are hot right now. We bought a company called ancestry.com. We bought a dating app called Bumble. That’s where the action is when people are sitting at home.

MS: Yeah, and I’m trying to figure out here why you’re also buying mobile homes when nobody’s really going anywhere. But anyway, well, that’s a conversation for another day. With regards to China and I’m gonna go out on the limb here. Your buddy Steve Schwarzman, of course, whom we’ve talked to many times here at CNBC as a reputation is known as President Trump’s China whisperer, you, on the other hand, have just done a fundraiser for Joe Biden. And there’s a lot of chatter, that if Biden wins come November, potentially, you could be the next treasury secretary, obviously, I’m not going to ask you to confirm or deny whether or not you take that job. But if you did, what would your approach be to China?

TJ:  Well, if I did, I would try to be much less strident, much less aggressive, I would try to reset the relationship in a more positive way. That’s not to say we don’t hold China accountable for being truthful and, following the rules. But if they did that, then I think they could be a very, as I say, important relationship for the country. I would try to do that by rallying international support. I wouldn’t go it alone, and I certainly wouldn’t try to insult them or damage them. I think there’s a win-win here. And I would work to do it that way.

MS: How much money is in China right now? And are you looking to add?

TJ: Well, I don’t know how much we have invested there. But we have a lot invested. We own several companies and private equity. We own a lot of real estate there. We’re believers in China long term. I mean, the China economic miracle is the greatest economic miracle in history. And look at how it’s coming out of COVID. Much better than any other country. I think it’s gonna be the only major country to have growth this year. So it tells you about the resilience of the country. And if you go back 20 years, China’s GDP was 20% of that of the US, now it’s 66%. Inevitably, it’ll pass the US. I don’t think that’s a big thing. As an American, I don’t care about that. Even when it does pass the US in aggregate GDP, because it’s so many more people, the per capita income will still only be a third or a quarter of that of the US. So I don’t feel threatened by China being bigger, as long as we can keep it, the rivalry on economic terms, not military terms, which gets very dangerous very fast.

SJ: Tony, back to this region, there is an infrastructure deficit in bottlenecks, however you slice it, how are you deploying there to take advantage of that area and that demand, and if I could ask you specifically, can you give us any insights as to where you are in terms of your battle for a controlling stake in Piramal Enterprises in India, their glass division, where are you on that particular development?

TJ: Well, I’m not going to comment on Piramal. I don’t like commenting on transactions that are in the public domain until they’re finalized. In terms of infrastructure, one of the biggest plays we’ve done around the world is what we call global logistics it’s warehouses and everything that goes with it. There is no country in the world no matter how advanced that has enough last mile warehouse to satisfy the demand of consumers for immediate delivery of things. Something like a third of all real estate, we’ve invested around the world, we’re the largest owner of real estate in the world, is in logistics plays. That’s been great for us in India, it’s been great for us in China and it’s been great for us in Asia, Europe, United States, absolutely everywhere. And that’s one of the big plays. If you’re talking about more traditional sort of bond like infrastructure. We will do that, but the low interest rates today, if it’s fully functional and occupied, like every other long-term bond, the returns have been a real pressure. So that’s a little hard to get excited about indeed.

MS: Listen, Tony wish we had a lot more time with you it’s been fascinating as always, you keep safe and hope to do it again very, very soon. Tony James, Executive Vice Chairman of Blackstone Group.


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