Carlyle’s David Rubenstein on stock rally after coronavirus lows

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Carlyle Group co-founder David Rubenstein told CNBC on Monday he was “still a little nervous” about the stock market’s robust rebound from its coronavirus-era lows.“I think the market has something more to do, but on the other hand, I don’t think it can keep going up forever at this rate,” Rubenstein said on “Squawk Box”. “I think there will be a break at some point. ”

Rubenstein’s comments come as the S&P 500 and Dow Jones Industrial Average are expected to post their best August performance in over 30 years, with gains of 7.2% and over 8%, respectively, before the latest one. trading day of the month.

Since their intraday low on March 23, after a week of Covid-19-induced liquidation, the S&P 500 has rebounded by around 60%. The Dow Jones has gained 57% since then.

Rubenstein, executive co-chairman of the private equity giant, said the Federal Reserve’s recent change in inflation policy, which could keep interest rates lower for longer, could be a reason for short term for stocks to continue to rise.

“The Fed’s statement… last week made it clear that the Fed was going to be very accommodating for a while, and that could fuel the markets for a while,” said Rubenstein, who served in the Carter administration before. to co-found. the Carlyle group in 1987.

The Fed’s new policy will allow inflation to “moderately” exceed its 2% target as it seeks to help the US economy emerge from the devastating hole caused by the pandemic. Since the 2008-09 financial crisis, the central bank has struggled to meet its 2% inflation target.

Rubenstein said he thought a little higher inflation would hardly be a problem. “I think inflation of around 3% or 4% wouldn’t be bad for the economy, it would probably be good for the economy. ”

“Inflation is a much more complicated thing to get when you really want it than you think,” Rubenstein added. He said he was familiar with the subject due to his time working for former President Jimmy Carter and the double-digit inflation that occurred while he was in the White House.

“We used to think deflation was a big deal. Now I think inflation is a bigger problem in terms of getting it. We just don’t seem to have enough inflation to really run the economy and grow as much as I think we should, ”Rubenstein said.

Both candidates will end up being “OK for the investment world”

U.S. President Donald Trump speaks during a press conference in the White House Briefing Room August 14, 2020 in Washington, DC.Alex Wong | Getty Images

Rubenstein said he believes the November presidential election has not worried Wall Street so far. “Neither the Democratic Party nor the Republican Party is saying things that are going to scare the market,” he said.

But Rubenstein argued that whoever wins – whether it be President Donald Trump for a second term or former Vice President Joe Biden – will likely have to consider the federal government’s debt and the need to raise taxes.

“Nobody wants to focus on that now, and if I was a candidate I wouldn’t focus on that either,” he said. But, he added, “we cannot continue to have half of our budget coming from borrowing. I think at some point we will have to pay some of that reduction, and at some point we will probably have to pay for it. with higher taxes. ”

Rubenstein said both candidates would end up being “OK for the investment world.” But he stressed that “economic and financial realities” must be addressed.

“People don’t tend to say a lot of negative things about how things are going to be when they campaign. They tend to have to face some of these realities once elected. But that’s what the market recognizes ”. said Rubenstein, author of a new book, “How To Lead,” in which CEOs and other prominent people share lessons on leadership.

He added that private equity will likely do “pretty well” under a second Trump term or under a Biden administration.

Although Trump and Biden have different ideological platforms, Rubenstein said, “I think you have to assume that whoever gets elected will probably have to do similar things. I suspect there will be tax increases, whoever gets elected, just to pay off some of the deficits we currently have. ”

“I suspect that at some point interest rates will go up, but probably not for a while,” he said.

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