In a couple years, the name that will be heading the crisis is Blackrock. The worlds largest fund, with about $10 trillion in assets under management is done. This company will likely be gone by the end of the decade.
Some might be taken aback by this. After all, if Blackrock got in trouble, they would be bailed out. It is, after all, "too big to fail".
Unfortunately, for millions of people that is not the case. Blackrock going under is not going to be a welcomed sight. It is easy to be hateful towards a Wall Street institution if you ignore who has money at stake. Who are Fink's customers? In many instances, it is managing money on behalf of money managers who get it from everyday people.
Here is where the fallout is going to get nasty.
Nevertheless, we have seen the best of Larry Fink. That said, it is amazing how he got there in the first place considering his forecast on interest rates in the 1980s cost First Boston $100 million. Invested in the stock market, that would be a couple trillion today.
So what is it that is going to doom Blackrock?
It is rather simple.
Blackrock has $10 trillion in assets under management. This is the set up for a massive collapse.
What is Blackrock invested in? We know they went and bought a ton of single family homes over the last 5 years. Fink is also one of the people committed to rebuilding of Ukraine. All of this is going to lead to the firm's demise.
Do you know how much $10 trillion is? Many would say yes, to big to fail. That would be incorrect.
The reality is $10 trillion is too big to sell. In other words, there is no market big enough to absorb that. This is compounded by the fact that Blackrock is invested in non-liquid assets. They are also not traded very easily.
That means it is positioned for a classic bank run. We have a situation where entities will go to Blackrock for their money and it isn't there because it invested in long term positions. This is the classic equation for failure.
Many focus upon liquidity. There is also the factor of tradability. This is something that gold bugs and many others overlook.
An asset might be non-liquid. If, however, it has a high degree of tradability, then liquidity can be resolved easily. One simply has to bring buyers into the market which means price cuts. This is the case for assets such as stocks or bonds. Of course, there are some that are so bad that a no bid is cemented in place. Outside those rare exceptions, something can be moved although the price will be painful.
The entire premise of the film Margin Call epitomized this. Since they were the first to market, they were even able to see stuff that was worthless because there was tradability to it.
Assets that are not tradable are ones such as real estate. Even if you drop the price to bring buyers into the market, the deal is not going to close for a couple weeks. A house is not a tradable asset in most instances.
This is why Blackrock is screwed. They own a ton of single family homes, something that is not easily moved. Then they have investments in Ukraine which cannot be unwrapped. All of this is going to put them in a liquidity crisis.
Ultimately, Blackrock's demise will be an old fashioned bank run.
This will not be the only entity. We could see Fidelity and Blackstone facing similar issues. Post 2024, we could see volatility increase around the world. This often flushes people out of markets, moving towards safer regions. When money managers start to pull their funding, where do these firms get the cash from. We know they are not sitting on it.
The ideal solution would be to sell. However, if there are trillions in redemptions, how do they get out of them. We already saw Blackstone delay payouts for some REITs because it didn't have the money.
If we get a confidence collapse, which could be brought on by sovereign debt crisis in certain areas of the world, this is going to be catastrophic for these firms. There is no way to get the money required out of the investments before the markets completely collapse.
Hence, while $10 trillion sounds like it makes one powerful, it is actually a noose. There is no way to liquidate these assets when needed.
And it will lead to the demise of many of these firms. At the head of the list is Blackrock.
