Carlyles Rubenstein on the US economy, the stock market, and Covid relief

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David M. Rubenstein, Co-Founder and Co-Executive Chairman of the Carlyle Group.

David A. Grogan | CNBC

David Rubenstein, co-founder of the Carlyle Group, told CNBC on Thursday that the biggest economic risk is high unemployment, not some areas of the stock market where valuations are overheated.

“I think by and large the stock market is not our biggest problem,” said the private equity titan in an interview about “Squawk Box”. “The biggest problem we have right now is that the economy is still being weighed by Covid. Until we get out of this situation and return to a situation where full employment is getting closer, the economy is not really going to be fair to to be all. ” . “

Rubenstein’s comments came Thursday, the day after Berkshire Hathaway vice chairman Charlie Munger raised serious concerns about the stock market’s activity and warned of a possible bubble.

“It is utterly outrageous in momentum trading by inexperienced investors drawn to new types of brokerage like Robinhood, and I think all of this activity is unfortunate,” said Munger, Warren Buffett’s longtime associate.

Rubenstein called 97-year-old Munger a “brilliant investor” and added that he agreed with some of what Munger said at the annual general meeting of the Los Angeles-based Daily Journal on Wednesday.

“There is no doubt that there is speculation in some areas of the market,” said Rubenstein, expressing concerns about companies with a valuation of billions of dollars and no sales.

“Young people might speculate about buying stocks they might not be buying. The bigger problem really is all of the people who are unemployed,” added Rubenstein, who served in the Carter administration prior to founding the Carlyle group in the 1987. He now serves as Co-Executive Chairman.

The U.S. economy fell into recession about a year ago when the Covid pandemic deepened, disrupted supply chains and led to sweeping business restrictions designed to slow the spread of the virus.

The unemployment rate has fallen significantly since its pandemic peak of nearly 15% in April, its highest level since the Great Depression. In January the economy created 49,000 jobs and the unemployment rate fell to 6.3%.

However, Rubenstein and others, like Federal Reserve chairman Jerome Powell, claim the job market is having more problems than the headline suggests. Powell said earlier this month that it was “a dramatic understatement,” adding that it would be closer to 10% if it weren’t for the Department of Labor’s misclassification errors during the pandemic.

Americans at the lower end of the income spectrum experience the greatest economic pain, Rubenstein said. “We have the real risk that we have a two-city country, ‘really a two-city story’, where people will be a permanent underclass and will never catch up and get where they are.” should be.”

President Joe Biden is pushing for a $ 1.9 trillion Covid aid package, which the Democrat believes will provide relief to struggling Americans and also help with the vaccine roll out. Republicans in Washington and some economists have raised concerns about the scope of the stimulus plan and suggested that the measure be more targeted.

Rubenstein agreed with Treasury Secretary Janet Yellen, who has repeatedly stated that a major aid package is needed to kickstart the economic recovery. Yellen is also a past chairman of the Federal Reserve with a background in labor economics.

“I think the finance minister has convinced the president and I think rightly that you should probably promise a little more and get more than you really need,” said Rubenstein. “If that results in some inflation, it won’t be terrible, given how low our inflation rate has been for so long. A little inflation is something we could probably tolerate.”

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