Carlyle Group co-founder David Rubenstein and his new book.
Government stimulus has "masked" the softening U.S. economy. For one, to avoid bad publicity several large recipients of stimulus funds — like the airline industry — have held off on employee layoffs. But when their stimulus money runs out Wednesday, if they fail to receive more, they'll have little choice but to initiate large-scale layoffs.
That's the short-term forecast for the economy from David M. Rubenstein, co-founder and co-executive chair of private equity firm The Carlyle Group, which manages $221 billion in assets, in an interview with ThinkAdvisor.
Further, Rubenstein warns that unless low-income Americans receive additional stimulus payments, they'll fall into the "COVID crater," only to see their economic circumstances worsen.
One — subjectively — optimistic note: Rubenstein argues that the death of Associate Supreme Court Justice Ruth Bader Ginsburg has given President Donald Trump's reelection effort "a breath of fresh air."
At 71, Rubenstein is a familiar face to many as host of "The David Rubenstein Show: Peer-to-Peer Conversations," where the philanthropic mover and shaker interviews fellow movers and shakers in fields ranging from finance to entertainment to government.
He's not afraid to throw humor into his relaxed interviews and in our chat boasts that he "even made Ben Bernanke [ex-Federal Reserve chair] look very funny."
Rubenstein has just published a new book, "How to Lead: Wisdom from the World's Greatest CEOs, Founders, and Game Changers" (Simon & Schuster-Sept. 2020). In our interview, he discusses six of his interview subjects — including Warren Buffett and Jamie Dimon — of the 31 that make up this collection.
Rubenstein grew up in Baltimore, the only child of a postal worker dad. He practiced law for two years, then was named deputy domestic policy assistant to President Jimmy Carter.
In 1987, he co-founded The Carlyle Group, which became one of the world's largest buyout firms, expanding to alternative asset management and private credit, and going public in 2012.
He is chair of the boards of trustees of the John F. Kennedy Center for the Performing Arts and the Smithsonian Institution, among others, and a trustee of Memorial Sloan Kettering Cancer Center and Johns Hopkins Medicine and others.
ThinkAdvisor interviewed Rubenstein, speaking from Washington, D.C., by phone on Sept. 23. We touched on more than a few interesting tidbits, including Jack Nicklaus' rating of Trump's golf game. Said the champ, in an interview in Rubenstein's book: "Of all [the U.S. presidents] I've played with, Trump is probably the best player. He doesn't really ever finish many holes, but he can hit the ball. He just goes out and plays, and enjoys it."
Here are highlights of our interview:
THINKADVISOR: What's your forecast for the U.S. economy?
DAVID RUBENSTEIN: The economy isn't in great shape because we've had, in effect, a heart attack with this gigantic pandemic-related recession. The federal government has propped it up with, kind of, artificial resuscitation. But when that money runs out, unless the government puts in a lot more, you'll see more and more people lose their jobs.
How soon are further big layoffs coming, do you think?
Some of the larger recipients [of stimulus money], to avoid bad publicity, haven't fired people. But on Sept. 30, the money for the airlines and some other money runs out, and you're going to start seeing a lot of layoffs. We've masked [the softening economy] with all this assistance, though not without cost: The federal budget is 50% debt and 50% revenue.
How would you specifically characterize the economy?
"A tale of two cities." If you're in the internet world — Google, Facebook, Apple, Microsoft, those kinds of companies — you're in great shape. If you're working a food truck, not educated, don't have internet access at home, don't have child care, you'll fall into "the COVID crater": The income inequality you might have experienced before will get worse.
How long will it take for the economy to recover?
A while. Normally a recession takes about two-and-a-half to three years to get back to where you were before. I suspect it will take us at least two-and-a-half years.
In the face of all that, the stock market has been doing well [though with significant volatility soon after this interview]. What's your analysis?
It's been propelled by the booming tech companies. [Without] them, the market would be down about 20-some percent from when [the pandemic started].
What else would cause the market to decline substantially?
For political purposes — it seems — the Justice Department is going to file an antitrust lawsuit against Google before the election. I suspect that will propel the stock market to go down a bit in the tech world.
It's true, though, that Google and other powerful companies just keep getting bigger and bigger, right?
Yes, Google [etc.] have been allowed to grow very big, and [mostly] nobody's been upset about it. But it would be very difficult to break up or shrink these companies unless the [U.S.] government is very serious about it.
What are the implications of this suit?
When the government files a lawsuit a [month] or so before the election — if it does — you have to argue that it's probably political, and you wonder whether the next administration will continue the suit.
What are the chances that President Trump will be reelected?
I know Donald Trump, and I also know Joe Biden very well. I thought that Trump would have a very difficult time getting reelected because of all the body blows he's taken — the pandemic, economy, investigations. However, I think that [Associate Supreme Court Justice] Ruth Bader Ginsburg's death has given him a breath of fresh air and light.
Anything else that's changed your mind?
The polling data suggests that Trump and Biden are getting closer in Florida, Pennsylvania, North Carolina, Arizona and Wisconsin. So I wouldn't rule out any [possible] outcome. If it's very, very close, we'll have to resolve it in the courts. That will be a jump ball: You don't know what's going to happen.
Clearly, the coronavirus pandemic will hold sway with voters. In your book, you include two interviews that you held with Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases — one, this past April. He's worked for seven presidents and is apolitical. He's also very diplomatic, isn't he?
He's as diplomatic as you can be. But President Trump got tired of having press conferences at the White House where Tony would contradict him. Tony deserves a lot of credit for standing up for what he believes in. He's been in a difficult situation being outvoted in Coronavirus Task Force meetings — and obviously a lot of politics is involved.
Why did he stop participating in those press conferences?
It's a complicated situation when you're working for the president of the United States, and he's saying things you don't believe in. I understand why Trump wouldn't want him at the White House press conferences because who wants to be contradicted in their own building?
