BlackRock's $1.8 trillion bond chief shares an epiphany he had that reshaped his entire economic outlook
- Rick Rieder, who oversees $1.8 trillion as chief investment officer of fixed income at BlackRock, had an epiphany while using the navigation app Waze.
- He points out that Waze saved him 40 minutes by redirecting him away from the congested Lincoln Tunnel. This saved him money in terms of fuel and time which will allow him to consume and produce more.
- According to Rieder, the way we measure productivity and economic growth is wrong. These metrics ignore many of the efficiencies we have created and the shift in jobs and spending from goods to services.
Following is a lightly edited transcript of the video.
Sara Silverstein: Can you tell me about your Waze epiphany?
Rick Rieder: Yeah. I think there was an extraordinary ... I literally was sitting in traffic one day and I was ready by the Lincoln Tunnel, and I hit the Waze button, and it redirected me and I truly think it saved 40 minutes of my life. And what I thought about is, you think about the productivity advancements, you know, in economic terms, people have talked about, "Oh my gosh, there's no productivity." It's just wrong.
WazeScreenshot of the Waze app changing routes because of heavy traffic.There's been real manufacturing productivity. There's been so many efficiencies created. You think about what Waze does, it allows you to now ... I just got about 40 minutes of things I could do. I can consume, there's a lot of things I could do with that 40 minutes. It's directing me, it's getting me from point A to point B, the cheapest way possible and most efficiently. I save fuel, insurance costs should come down. By the way I get advertisements that come through, that show me I'm passing this restaurant, maybe you want to stop at that restaurant. You have now created the whole delivery mechanism, the whole way we run our lives, in a much more efficient manner. It means you bring down the cost-base of things, and it allows you to be more efficient, consume more, produce more, et cetera. I just think it's the ... you think about GPS technology, what that has done for the world today. It's just not factored in to traditional economic models. When people say,"You grow this, inflation's supposed to be here." GPS has changed the world. And the dissemination of data, fast data dissemination, data storage, has changed everything about how we order food, how we do everything in the world. And I just don't think that gets into economic models, but you think about what most of it is, I wouldn't say it's deflationary, it's disinflationary, but allows for more consumption and more efficiencies.
Silverstein: And how does that color your economic outlook?
Rieder: Yeah, so, you know, part of what I think, I think people have to think about where are interest rates going? Interest rates are going moderately higher. We think inflation is moving up a little bit, but you shouldn't be that worried about - my gosh, we're going to, you think about where we were in the '70s and '80s where interest rates were, you got what is going to be a stable moving fad, inflation's not gonna scare them. Certainly, the ECB is not gonna be nervous about it, Japan's not gonna be worried about this inflation. It's just a different paradigm. It means the assets that you invest in, your hurdle rate, doesn't need to be - you don't have to hurdle a much higher rate of inflation like you have historically. So things that get you 6%, 7% yield, can become really attractive because we're not moving to a much higher rate threshold than we've been before. And I think people are discounting that or don't account for that as effectively. For us it means, boy if I can buy an asset that's reasonably safe, gets me a mid-single digit return, it's pretty good because I'm not worried about inflation moving dramatically higher and killing my return.
Silverstein: And going back to technology adding value, do you think that GDP - that we're measuring growth accurately and does that matter?
Rieder: No, no. I don't think we're measuring it right at all. But I think we're missing so much of how the economy - how the economy grows today, and how efficiencies take place, and there's so many things that aren't measurable, that, you know, when people, this - the thing that I find the most surprising or frustrating at times, is people talk productivity. And they say, "My God, there's no productivity." Because you measure productivity as output relative to resources or people being employed. We've hired since 2010, I think it's 18 million people in the service sector. Service sector jobs tend to be - when you think about whether it's healthcare or education, that they tend to be lower output per unit of labor.
BlackRockRieder: So people say, "My God, there's no productivity." But you look at manufacturing, there's been tremendous growth in manufacturing, fewer jobs. But then grow a huge number of people hired in the service sector, it's because you're in an economy that's incredibly productive. But people say traditional economic theory is, "My God, there's no productivity." There's tons of productivity. It just gets into the economy in different ways than we've ever had before. And since 2010, the number's 110% of the jobs that have been hired have been in the service sector. So people say, "My God, there's no productivity." There is productivity, it's just the world is changing, in terms of how the economy works.