Carlyle’s Rubenstein says biggest economic risk is high unemployment, not stock market speculation

David M. Rubenstein, Co-Founder & Co-Executive Chairman, The Carlyle Group.

David A. Grogan | CNBC

Carlyle Group co-founder David Rubenstein told CNBC on Thursday he believes the largest economic risk is high unemployment, not some areas of the stock market where valuations have become overheated.

“I think on the whole, the stock market is not our biggest problem,” the private equity titan said in an interview on “Squawk Box.” “The biggest problem we have right now is the economy is still weighed by Covid, and until we get out of that and we get back to a situation where have closer to full employment, the economy is not really going to be fair to be everybody.”

Rubenstein’s comments Thursday came one day after Berkshire Hathaway Vice Chairman Charlie Munger expressed serious concerns about activity he was seeing in the stock market, warning of a potential bubble.

“It’s most egregious in the momentum trading by novice investors lured in by new types of brokerage operation like Robinhood and I think all of this activity is regrettable,” said Munger, the longtime business partner of Warren Buffett.

Rubenstein called the 97-year-old Munger a “brilliant investor,” adding that he agreed with some of what Munger said Wednesday at the annual shareholders meeting of Los Angeles-based Daily Journal.

“There’s no doubt there’s some speculation in some areas of the market,” said Rubenstein, expressing concerns earlier in the interview about companies with multi-billion dollar valuations and no revenue.

“Young people might be speculating buying some stocks that maybe they shouldn’t be buying. Really, the bigger problem is all the people that are out of work,” added Rubenstein, who served in the Carter administration prior to co-founding the Carlyle Group in 1987. He now serves as its co-executive chairman.

The U.S. economy fell into a recession about a year ago as the Covid pandemic intensified, causing disruptions to supply chains and leading to wide-ranging business restrictions intended to slow the spread of the virus.

The unemployment rate has declined considerably since its pandemic peak of nearly 15% in April, the highest level since the Great Depression. In January, the economy added 49,000 jobs and the unemployment rate fell to 6.3%.

However, Rubenstein and others such as Federal Reserve Chair Jerome Powell contend the labor market is struggling more than the headline rate suggests. Powell said earlier this month that it is “dramatically understated,” adding it would be closer to 10% if not for the misclassification errors faced by the Labor Department during the pandemic.

Americans at the lower end of the income scale are feeling the most economic pain, Rubenstein said. “We have a real risk that we’re going to have a country of two cities, ‘really a tale of two cities’ where people are going to be a permanent underclass and they’re never going to catch up and get to where they should be.”

President Joe Biden is pushing for a $1.9 trillion Covid relief package, which the Democrat argues will deliver relief to struggling Americans and also help with the vaccine rollout. Republicans in Washington and some economists have expressed concerns about the size of the stimulus plan, suggesting the measure should be more targeted.

Rubenstein indicated he agrees with Treasury Secretary Janet Yellen, who has repeatedly said a major relief package is needed to boost the economic recovery. Yellen is also a former Federal Reserve chair with a background as a labor economist.

“The secretary of the Treasury I think has convinced the president, and I think rightly so, that you probably should over-promise a little bit more and get more than you really need,” Rubenstein said. “If there is some inflation that comes about as a result of this, it’s not going to be terrible given how low our inflation rate has been for such a long time. A little inflation is something that we could probably tolerate.”

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