July 20, 2023 - 9:51am EST by
2023 2024
Price: 747.00 EPS 0 0
Shares Out. (in M): 150 P/E 0 0
Market Cap (in $M): 112,050 P/FCF 0 0
Net Debt (in $M): 1,025 EBIT 0 0
TEV (in $M): 113,075 TEV/EBIT 0 0

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BlackRock is *the* long-lived juggernaut of the global investment industry, is cheap on temporarily depressed earnings due to QT, and I believe will be a direct beneficiary of a rapidly rising global money supply and currency debasement for many years to come.

I initially shared my BLK thesis in 2020 at share prices only slightly lower than today’s, owing to a sharp pullback from nearly $1,000/sh in late 2021 in the wake of QT.  In my initial writeup, I overestimated the growth of Aladdin, however that business is going strong and has great value inside, or separated from, BLK.  In this brief writeup, I will get to the point through several charts.

My point is simple.  The US and Global money supply is going to inflect higher, due to rising deficit spending, higher interest rates and political/social causes that simply cannot be paid without creating new money.  Monetary debasement is nothing to be upset about - it is how fiat money works, it is how fractional reserve banking works.  If you are cloudy about why this is, you are not alone - very few people, and sadly, very few investment professionals, truly understand how money is created and destroyed.  In the US, we are in a temporary era of QT, but due to very high deficits credit growth continues, confounding many experts.  Debt is money in a credit-based system, and the debt/money supply here and abroad is virtually certain to expand rapidly in the years to come, because there is no other practical outcome, no other way to service the debt.

BlackRock, as an asset-light asset manager that earns fees based on nominal asset prices that drive operating margins in the 40%+ range, is likely to be an outsized, direct beneficiary of this dynamic in its equity, debt and software products.  BlackRock, given scale economies, also should continue growing its market share, but that is not a necessary component of the thesis.  As this occurs, the company should be expected to continue repurchasing stock and paying a substantial dividend.

With a forward FCF yield of about 6%, I expect BLK shares to benefit from both significantly upward earnings growth and multiple expansion as investors ultimately begin to understand the implications for debt growth, and how it’s best to own assets that benefit from this incredibly powerful, quasi-permanent dynamic.  Once that occurs, markets could begin envisioning dramatically higher earnings for the company, and valuing the company as the dominant inflation protection force that it is likely to be...