Blackstone chief: Fed "money-printing" will backfire

Stephen Schwarzman, chief executive officer of Blackstone Group LP, the world's biggest buyout firm, said another round of asset purchases by the U.S. Federal Reserve won't have much of an impact on companies.

"It's not an enormous incentive to do something different with your businesses because rates are down a few basis points," Schwarzman, 63, said yesterday in an interview with Bloomberg Television's Margaret Brennan at the UBS Wealth Management Roundtable in New York. "Money's already quite cheap."

With their benchmark interest rate near zero, Fed policy makers meet Nov. 2-3 to consider steps to boost an economy that's growing too slowly to reduce unemployment near a 26-year high. The central bank has asked bond dealers and investors for projections of central bank asset purchases over the next six months, along with the likely effect on yields, as it seeks to gauge the possible impact of new efforts to spur growth.

Schwarzman joins hedge-fund managers Paul Tudor Jones, Clifford Asness and Colm O'Shea in casting doubt on the effectiveness of more so-called quantitative easing. Asness, who runs Greenwich, Connecticut-based AQR Capital Management LLC, said he doesn't expect any long-term effects from such a move.

"Us printing money to buy our own bonds I don't think can matter long term," Asness said this week in an interview with Bloomberg News at the Buttonwood Gathering, a conference organized by The Economist magazine in New York.

Credibility Risk

Paul Tudor Jones, founder of the $11.5 billion hedge-fund firm Tudor Investment Corp. in Greenwich, Connecticut, said in an investor letter last week that a revaluation of China's renminbi would do more to cut unemployment than asset purchases by the Fed. Colm O'Shea, who runs London-based hedge fund Comac Capital LLP, told investors in August that the Fed would "risk its credibility" with a second round of quantitative easing.

Jeremy Grantham, chief investment officer of Grantham Mayo Van Otterloo & Co. in Boston, said in a quarterly letter to investors that the Fed's quantitative easing will be a "more desperate maneuver than the typical low-rate policy."

Estimates for the size of the purchase range from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc. Both firms say the Fed will start by announcing $500 billion in purchases after the Nov. 2-3 meeting.

'Counter-Stimulative'

William Dudley, president of the New York Fed and vice chairman of the Federal Open Market Committee, set expectations of about $500 billion for a new round of quantitative easing, or QE, a figure he used in an Oct. 1 speech.

Tony James, president of New York-based Blackstone, said today he wasn't convinced pushing borrowing costs lower would have a positive effect on the economy.

"I don't see that lower rates are going to encourage American industry to borrow and build," James said today on a conference call with reporters. "It has a counter-stimulative effect. I don't think it works."

Schwarzman said the Dodd-Frank Act, a regulatory overhaul enacted this year that expanded the Fed's authority to oversee non-bank financial firms deemed "too big to fail," will prolong the period of slow growth and will "depress the level of recovery" of the U.S. economy.

View the original article here