May 6, 2025 • 17 mins
When asked about current US debt levels, Pimco’s Roman repeated something he heard from a private conversation with former Treasury secretary, Janet Yellen: “It’s not a problem until it becomes a problem.” He is joined by Bloomberg's Carol Massar and Romaine Bostick.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:06):
We want to bring in the head of the world's
biggest active bond manager, PIMCO. They began making earlier this
year making a case for actually owning treasuries in that
five to ten years zone as it's all get this
unpredictable US policy, furnishing the appeal of high quality bonds
at least compared when it's to equities as well as
the corporate debt, and so far that bet is paid off.
(00:27):
You see that in the returns in the bond market
relative to equities. For a closer view of that market
and the signals it may be sending, please say that.
Manny Roman joins us right now, CEO of PIMCO. Great
to have you, Mannie.
Speaker 3 (00:37):
Thank you for having me.
Speaker 2 (00:39):
Market disruptions. Market perceptions have changed a lot, really in
the last four months, because I felt like in January,
coming into this year, people were relatively optimistic.
Speaker 3 (00:50):
That's correct.
Speaker 1 (00:50):
I think I think people had made the assumption that
they'd be a very quick resolution to the tariff question.
And the reality is there's a lot we don't know,
but tariff are going to.
Speaker 3 (01:05):
Be high, and.
Speaker 1 (01:07):
That we're going to have to deal with it for
a long time, and that will need to readdress that
thinking both in terms of economic growth but also inflation.
Speaker 3 (01:17):
And I think that's the real question we have to
deal with.
Speaker 2 (01:20):
Can you make that change now, meaning like when you
have to factor in what economic growth will be, what
the impact of tariffs will be, even though we don't know,
how do you make that pivot now?
Speaker 3 (01:30):
I think you do scenario analysis.
Speaker 1 (01:32):
The big three trading partners are China and Mexico Canada,
so you basically run simulation and say, if this happened,
then this will be GDP, If this happened, this will
be inflation, and acknowledge that we don't know what the
end game is going to be, and the only thing
(01:53):
we can reasonably say is the overwhelming likelihood is you
will have high tariff for of course.
Speaker 3 (02:00):
Future and we'll have to deal with this Mannie.
Speaker 4 (02:03):
Once we know what the terms are, just some of
the uncertainty go away and things settle down. But it's
structurally a different financial dynamic potentially depending on how high
those tariffs are.
Speaker 1 (02:14):
I think that's right, but I think a number of
company we'll have to re engineer the supply chain and
optimize the production costs and the trendsfer pricing based on
what the tariff will be. And I think that changing
supply chain may not be as easy as what you
(02:35):
make it to be. For us, we look at a
set of macro parameters and optimize our portfolio and decide
what we think is attractive in terms of asset and
buy them at the best possible price.
Speaker 3 (02:49):
So what does that mean for investors?
Speaker 4 (02:50):
Do they just kind of stay put waiting for everything
to settle, or are they starting to make those bets
assuming it is going to be very different? Tell us
a little about what you are seeing in terms of
flow the time.
Speaker 1 (03:02):
I think you've seen enormous volatility in the equity market,
right and somehow I would say with surprise that the
equity market has bounced back to the Liberation Day level.
Speaker 3 (03:15):
But you've seen clearly a move to cash.
Speaker 1 (03:18):
All world, which is the bond world, has been pretty
much unaffected. And my partner Dan Iverson has to say,
where you look at the year on a portfolio of bonds,
say six percent, six and a half percent, it's a
very good predictor of what your return will be over
the next five years.
Speaker 3 (03:39):
So if you want to own bones you're.
Speaker 1 (03:41):
Gonna make six and a half percent, give or take
over the next.
Speaker 3 (03:46):
Five years, how are you going to get there? A
lot of uncertainty, And that's what.
Speaker 2 (03:50):
I'm curious is about the volatility. And I mean you're
referring to your CIO. I mean I saw an interview
where you actually talked about how he was really embracing
that volatility to a certain excent.
Speaker 3 (04:00):
So there's too competent to it.
Speaker 1 (04:03):
What we like about volativity is the fact that it
will provide investment opportunity and a source of alpha in
terms of treading different part of the curve, but also
different products and to move away from the US.
Speaker 3 (04:19):
And find opportunity in other part of the world. So
you can.
Speaker 1 (04:24):
Always buy US asset, but you can also buy non
US asset as a way.
Speaker 3 (04:29):
To get duration and hedge them back into dollars.
Speaker 1 (04:32):
So, for example, we like Australian duration Australia as a
very Robert Academy. We like Australian bonds, but we hedge
them back in two dollars.
Speaker 3 (04:43):
That's a way to add alpha to the portfolio.
Speaker 2 (04:45):
How complicated is it to do that when there's also
a ton of volatility in the FC space, and no
one seems to know where the dollars might be.
Speaker 1 (04:54):
You may wonder what the two thousand people we have
in you publish doo.
Speaker 3 (04:58):
That's what they do. You know, we could deal with that.
Just about that, we can deal with that. Listen.
Speaker 4 (05:05):
US Secretary Treasury Scott Besson obviously really kicking off milk
and on Monday, and he talked about the importance of
watching the tenure.
Speaker 3 (05:12):
Do you agree in terms of US treasuries.
Speaker 1 (05:16):
The cost of boring is very important? And I think
I will answer this in twofold one. The US dollar
as a reserve currency is really important, and the ten
year bond is in a way the parameter for the
financial health of the world academy, so it is really important.
Speaker 3 (05:35):
Now, I would say you look at the whole year.
Speaker 1 (05:37):
Cove, you look at the short end, the ten year,
the thirty year. You think also about credit spread they're
very tight, and you think about all of this parameter
and try to assess what's.
Speaker 3 (05:51):
To come and how you're going to deal with it.
Speaker 4 (05:54):
Manny, one thing I'm curious about, and bringing up Secretary person,
what is the boy that you listen to most trying
to determine ultimately what happens in the US, especially when
it comes to its financial system and the importance of
you know, it's been the place the world safe haven,
(06:14):
right and it will.
Speaker 1 (06:16):
Remain and it will remain, it will remain as the
place of safe handy.
Speaker 4 (06:20):
We're so sure why.
Speaker 3 (06:22):
Well, think about it.
Speaker 1 (06:24):
The US dollar is the reserve currency, but it's also
the most liquid treasury market in the world.
Speaker 3 (06:31):
About an enormous factor. And yes, you know, you can make.
Speaker 1 (06:36):
A reasonable argument that the dollar is slightly expensive and
that you may want to diversify from the dollar to
other currency, but it doesn't mean, it does not mean
that the dollar loses its status. And I think it's
very important to keep that in mind. There's no other
reserve currency, there's no other place to move trillions and
(06:58):
trillions of dollars away from the dollar, and it is
what it is.
Speaker 4 (07:02):
Do you have faith in the Treasury Secretary to do
the right thing, or at least get the President's here
on doing the right thing, because he has said some
things in regards to the Fed the Treasury secretary. Even so,
I'm just curious, do you have faith?
Speaker 1 (07:17):
I think the wonderful thing about financial markets is that they're.
Speaker 3 (07:21):
Efficient, and so they'll tell them and that the.
Speaker 1 (07:24):
Market reacts to policy, and when the market doesn't like
either policies or a tweet, the market react in such
a way that people need to adjust the cost of action.
The market wants the FED to be independent, and I
think has voted very strongly about that, and I think.
Speaker 3 (07:44):
That dictates some of the choices and some of.
Speaker 1 (07:47):
The noise around all of this.
Speaker 3 (07:52):
And you know, it's a good thing. Markets are there.
Speaker 1 (07:54):
To reflect, to reflect supply and demand and also reaction
to event in the world, and we.
Speaker 2 (07:59):
Saw that play out in a big way in April.
One side of that, though, basically to your comments about
there kind of this being the most liquid market, this
is kind of the reserve currency, and that's not going
to end. Will lessen to a degree because when we
look at our treasury market and we think about how
many global investors hold our bonds, all the rumors that
(08:20):
maybe certain nations might be willing to weaponize their holdings
if the dispute with the US over trade escalates, does
that concern you?
Speaker 3 (08:29):
You know, there's no free launch.
Speaker 1 (08:31):
The reason why people own US dollar is because they
like to own US dollar asset. There is a very
strong case for American exceptionalism. The fact that the financial
systems are very liquid and very well run, and that
if you, for example, a Japanese investor, where it's about
a trillion dollars of US debt held by Japanese institution,
(08:55):
it's a good place to be even hedge back in yen.
And I think that's that's really an important fact to
remember in terms of the flow of fund and who
needs to put money aware.
Speaker 2 (09:09):
Is the treasury market healthy right now?
Speaker 3 (09:12):
Totally? You did not.
Speaker 2 (09:14):
You weren't concerned at all about what transpired that first
week to April, about the potential come up in the
system or that mismatch between buyers and sellers.
Speaker 3 (09:22):
No.
Speaker 1 (09:23):
We on the contrary, I think we've seen very liquid
market voice and treasury and in credits, and to be honest, yeah,
you know, markets have been remarkably well behaved. We had
a couple of difficult days during COVID before they fed intervened, but.
Speaker 3 (09:42):
It's been very with sailing since.
Speaker 1 (09:44):
And you know, the markets offer plenty of opportunity to
change your mind. One of the good contribution have been
ETF where ETF have a low people like us to
do portfolio, trade, rebalance or book and to use this
liquidity to move assets around and and I would, I
(10:05):
would really and fisis this The markets are quite liquid?
Speaker 2 (10:09):
I promise not all my questions are pessimistic, but I
do have wonder lie with the guard I mean, you
had a market, they had to deal with the trade
issues that hasn't been resolved, but they certainly made some
degree a piece with where we are. There's now a
big budget battle that's about to take place in Washington,
and I do wonder as the lead leader of the
biggest bond company bon investor out there is there concern
(10:34):
that our fiscal deficit and the potential remedies that are
being discussed in Congress could exasperate the situation and the
fixed income market.
Speaker 1 (10:43):
That's the that's the wonder of being the reserve currency.
Speaker 3 (10:47):
Everything else being equal, you could.
Speaker 1 (10:49):
Run a slightly higher deficit than you would otherwise. And
I think that, of course, people will look at the
amount of deficit and you know, it is all the
willingly likely that.
Speaker 3 (11:01):
The deficit is not going to get reduced.
Speaker 1 (11:04):
But once again, would you rather own very high quality
asset in the US or.
Speaker 3 (11:11):
Would you rather own bonds? In Southern Europe.
Speaker 1 (11:15):
You can decide which one you would rather own. That's
the reality. The reality is you need to invest somewhere so.
Speaker 4 (11:22):
You're not worried about it's a lot of debt. It's
a physical situation. It's been a lot of debt for
a long time. But now we're at levels we haven't
seen and so I'm just curious, is there some point?
It sounds like you're saying, well, where else are you
going to go?
Speaker 1 (11:36):
Right?
Speaker 4 (11:36):
And it's kind of part of the us being the
market in the world, So like, should we just accept it?
Speaker 1 (11:44):
No?
Speaker 3 (11:44):
I think I would. I would. I would reply with
a quote.
Speaker 1 (11:47):
That I heard Janet Yellen gave in a private conversation.
She said, all we can say is it's not a
problem until it becomes a problem, and so but but
it's a deeper it's a deeper meaning maybe that it
appears like there's a tipping point, which is very hard
to guess where all of a sudden, either because the
(12:11):
issue will lose credibility or because the policy.
Speaker 3 (12:15):
Doesn't make sense to market participant. People all of a
sudden don't want to be the marginal buyer.
Speaker 1 (12:20):
And I think that's the analysis we constantly make in
terms of what's the right level to clear the market? Man,
when we.
Speaker 4 (12:29):
Had the disconnect between the equity markets selling off a bunch,
we saw yield spiking, right, we were trying to make
sense of it, right, it just didn't seem to come together.
Are you telling investors watch the bond market equity is
kind of do like, how do you make sense of
something like that?
Speaker 1 (12:43):
Well, you could say that it did make sense because
the market all of a sudden said we're going to
get in the worst possible situation.
Speaker 3 (12:49):
We're going to get into stackflation.
Speaker 1 (12:51):
Right, and in a case of stackflation, I can remember
seventy three and seventy four. Now there were real macro
reason with no shock, but stackflation is a real ugly
problem because everything goes down and there's no place to
hide except cash, and even cash because of inflation, you
lose money. And I think you saw the price of
(13:12):
gold reacting to this, and so if you use my
frame of mind, yeah, then I think it sort of
makes sense. It's not a pretty picture, and I think
the market corrected pretty quickly, and say, you know what
stackflation is, by father, not the most likely scenario, but
the odds of a recession must be slightly of a fifty.
Speaker 4 (13:32):
Do you agree stackflation not likely?
Speaker 3 (13:36):
Yes, free, it's not likely. Okay, it's not likely, got it?
Speaker 1 (13:41):
And I think stackflation is the nightmare or for central banker. Yeah,
and most of them haven't seen it. You know, you
have to remember that, market participants. There's only one good
thing about being old is you've seen my market cycle. Yeah,
and you know, I remember, for example, the night one
ninety two crisis with the SNL.
Speaker 3 (14:02):
You know, we had the Milken conference.
Speaker 1 (14:05):
You know, people had border a lot of I yelled
debt and some of it had to sell.
Speaker 3 (14:10):
So you remember that. You try not to make the
same mistake.
Speaker 1 (14:13):
You remember nineteen ninety eight, you remember two thousand and one,
in two thousand and two, and of course remember the
Great Financial Crisis.
Speaker 3 (14:19):
And each crisis is different, but.
Speaker 1 (14:21):
You have a frame of reference where you've seen ups
and downs in the financial markets.
Speaker 2 (14:26):
I want to talk specifically about your business, and I
mean you've got a big private business, private credit business
alongside the public credit business. And we've been talking a
lot over the last couple of days about how all
these markets seem to be overlapping. There's sort of this
Venn diagram between public markets, private markets, credit equity, et cetera.
Are they in conflict with each other or are they
complimenting each other.
Speaker 1 (14:46):
I think they complement each other, but they may not
offer the same value at every point in time. So
I'll give you a very simple example. There's a reasonable
case to be made that we have a probability.
Speaker 3 (14:59):
Of a recession slightly above fifty percent. If that's the case,
you don't want to own.
Speaker 1 (15:07):
Higher credit, and you probably don't want to own derect clending.
Why because the company all leverage, they are weak single
B they may or may not be in the industry
you want to be in.
Speaker 3 (15:23):
And so if you have a recession, you'll see losses.
Speaker 1 (15:26):
By the way, losses are normal, it doesn't mean there's
anything wrong. But when we think of optimizing our portfolio,
we find better opportunity to invest than the weaker credit
at this stage of the business cycle.
Speaker 2 (15:41):
And then making those decisions, I mean, you reference just
a second ago about all the books you have to
figure out where the dollar is going to go. I
assume that there's got to be a big technological component
to that. When you took over back in twenty sixteen,
you made a big push to add more technology resources
to what you guys do, and given what's inspired over
the last few years with AI and the newfound interest
(16:03):
in that space, I'm wondering how much of that has
become a component of the analysis and decision making process, A.
Speaker 3 (16:09):
Very large one, And that's a very good question if
you think about it. You know, what do we want?
Speaker 1 (16:13):
We want great people to work for PIMCO and to
stay for as long as possible, and then we want
the best technology and the most innovative quant and marry the.
Speaker 3 (16:25):
Two together and hope that it works.
Speaker 1 (16:29):
And the EI revolution for us is the ability to
manipulate a lot of data coming from very disparate sources,
analyze them and get to a tool to help making
decisions which is incredibly granular. So we are very very
(16:51):
big player in mortgages. Everyone has a mortgage somewhere. We
have a totally unique database. And what I mean by
database is not only numbers, it's picture, its location, it's
conversation with the mortgage broker. And so you get an
edge because you have an ability to crunch through an
(17:13):
enormous amount of data and get to another granular level
of decision that our.
Speaker 3 (17:20):
Human brain would need a longer to be able to
do as we go pretty quickly. I'm just going to
tell you it's very fast.
Speaker 4 (17:28):
He's very very fast, Nanny. I'm so thoughtful, so helpful.
Thank you so much for asking for our audience. Really
appreciate it many Reven the Pimco CEO
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:06):
We want to bring in the head of the world's
biggest active bond manager, PIMCO. They began making earlier this
year making a case for actually owning treasuries in that
five to ten years zone as it's all get this
unpredictable US policy, furnishing the appeal of high quality bonds
at least compared when it's to equities as well as
the corporate debt, and so far that bet is paid off.
(00:27):
You see that in the returns in the bond market
relative to equities. For a closer view of that market
and the signals it may be sending, please say that.
Manny Roman joins us right now, CEO of PIMCO. Great
to have you, Mannie.
Speaker 3 (00:37):
Thank you for having me.
Speaker 2 (00:39):
Market disruptions. Market perceptions have changed a lot, really in
the last four months, because I felt like in January,
coming into this year, people were relatively optimistic.
Speaker 3 (00:50):
That's correct.
Speaker 1 (00:50):
I think I think people had made the assumption that
they'd be a very quick resolution to the tariff question.
And the reality is there's a lot we don't know,
but tariff are going to.
Speaker 3 (01:05):
Be high, and.
Speaker 1 (01:07):
That we're going to have to deal with it for
a long time, and that will need to readdress that
thinking both in terms of economic growth but also inflation.
Speaker 3 (01:17):
And I think that's the real question we have to
deal with.
Speaker 2 (01:20):
Can you make that change now, meaning like when you
have to factor in what economic growth will be, what
the impact of tariffs will be, even though we don't know,
how do you make that pivot now?
Speaker 3 (01:30):
I think you do scenario analysis.
Speaker 1 (01:32):
The big three trading partners are China and Mexico Canada,
so you basically run simulation and say, if this happened,
then this will be GDP, If this happened, this will
be inflation, and acknowledge that we don't know what the
end game is going to be, and the only thing
(01:53):
we can reasonably say is the overwhelming likelihood is you
will have high tariff for of course.
Speaker 3 (02:00):
Future and we'll have to deal with this Mannie.
Speaker 4 (02:03):
Once we know what the terms are, just some of
the uncertainty go away and things settle down. But it's
structurally a different financial dynamic potentially depending on how high
those tariffs are.
Speaker 1 (02:14):
I think that's right, but I think a number of
company we'll have to re engineer the supply chain and
optimize the production costs and the trendsfer pricing based on
what the tariff will be. And I think that changing
supply chain may not be as easy as what you
(02:35):
make it to be. For us, we look at a
set of macro parameters and optimize our portfolio and decide
what we think is attractive in terms of asset and
buy them at the best possible price.
Speaker 3 (02:49):
So what does that mean for investors?
Speaker 4 (02:50):
Do they just kind of stay put waiting for everything
to settle, or are they starting to make those bets
assuming it is going to be very different? Tell us
a little about what you are seeing in terms of
flow the time.
Speaker 1 (03:02):
I think you've seen enormous volatility in the equity market,
right and somehow I would say with surprise that the
equity market has bounced back to the Liberation Day level.
Speaker 3 (03:15):
But you've seen clearly a move to cash.
Speaker 1 (03:18):
All world, which is the bond world, has been pretty
much unaffected. And my partner Dan Iverson has to say,
where you look at the year on a portfolio of bonds,
say six percent, six and a half percent, it's a
very good predictor of what your return will be over
the next five years.
Speaker 3 (03:39):
So if you want to own bones you're.
Speaker 1 (03:41):
Gonna make six and a half percent, give or take
over the next.
Speaker 3 (03:46):
Five years, how are you going to get there? A
lot of uncertainty, And that's what.
Speaker 2 (03:50):
I'm curious is about the volatility. And I mean you're
referring to your CIO. I mean I saw an interview
where you actually talked about how he was really embracing
that volatility to a certain excent.
Speaker 3 (04:00):
So there's too competent to it.
Speaker 1 (04:03):
What we like about volativity is the fact that it
will provide investment opportunity and a source of alpha in
terms of treading different part of the curve, but also
different products and to move away from the US.
Speaker 3 (04:19):
And find opportunity in other part of the world. So
you can.
Speaker 1 (04:24):
Always buy US asset, but you can also buy non
US asset as a way.
Speaker 3 (04:29):
To get duration and hedge them back into dollars.
Speaker 1 (04:32):
So, for example, we like Australian duration Australia as a
very Robert Academy. We like Australian bonds, but we hedge
them back in two dollars.
Speaker 3 (04:43):
That's a way to add alpha to the portfolio.
Speaker 2 (04:45):
How complicated is it to do that when there's also
a ton of volatility in the FC space, and no
one seems to know where the dollars might be.
Speaker 1 (04:54):
You may wonder what the two thousand people we have
in you publish doo.
Speaker 3 (04:58):
That's what they do. You know, we could deal with that.
Just about that, we can deal with that. Listen.
Speaker 4 (05:05):
US Secretary Treasury Scott Besson obviously really kicking off milk
and on Monday, and he talked about the importance of
watching the tenure.
Speaker 3 (05:12):
Do you agree in terms of US treasuries.
Speaker 1 (05:16):
The cost of boring is very important? And I think
I will answer this in twofold one. The US dollar
as a reserve currency is really important, and the ten
year bond is in a way the parameter for the
financial health of the world academy, so it is really important.
Speaker 3 (05:35):
Now, I would say you look at the whole year.
Speaker 1 (05:37):
Cove, you look at the short end, the ten year,
the thirty year. You think also about credit spread they're
very tight, and you think about all of this parameter
and try to assess what's.
Speaker 3 (05:51):
To come and how you're going to deal with it.
Speaker 4 (05:54):
Manny, one thing I'm curious about, and bringing up Secretary person,
what is the boy that you listen to most trying
to determine ultimately what happens in the US, especially when
it comes to its financial system and the importance of
you know, it's been the place the world safe haven,
(06:14):
right and it will.
Speaker 1 (06:16):
Remain and it will remain, it will remain as the
place of safe handy.
Speaker 4 (06:20):
We're so sure why.
Speaker 3 (06:22):
Well, think about it.
Speaker 1 (06:24):
The US dollar is the reserve currency, but it's also
the most liquid treasury market in the world.
Speaker 3 (06:31):
About an enormous factor. And yes, you know, you can make.
Speaker 1 (06:36):
A reasonable argument that the dollar is slightly expensive and
that you may want to diversify from the dollar to
other currency, but it doesn't mean, it does not mean
that the dollar loses its status. And I think it's
very important to keep that in mind. There's no other
reserve currency, there's no other place to move trillions and
(06:58):
trillions of dollars away from the dollar, and it is
what it is.
Speaker 4 (07:02):
Do you have faith in the Treasury Secretary to do
the right thing, or at least get the President's here
on doing the right thing, because he has said some
things in regards to the Fed the Treasury secretary. Even so,
I'm just curious, do you have faith?
Speaker 1 (07:17):
I think the wonderful thing about financial markets is that they're.
Speaker 3 (07:21):
Efficient, and so they'll tell them and that the.
Speaker 1 (07:24):
Market reacts to policy, and when the market doesn't like
either policies or a tweet, the market react in such
a way that people need to adjust the cost of action.
The market wants the FED to be independent, and I
think has voted very strongly about that, and I think.
Speaker 3 (07:44):
That dictates some of the choices and some of.
Speaker 1 (07:47):
The noise around all of this.
Speaker 3 (07:52):
And you know, it's a good thing. Markets are there.
Speaker 1 (07:54):
To reflect, to reflect supply and demand and also reaction
to event in the world, and we.
Speaker 2 (07:59):
Saw that play out in a big way in April.
One side of that, though, basically to your comments about
there kind of this being the most liquid market, this
is kind of the reserve currency, and that's not going
to end. Will lessen to a degree because when we
look at our treasury market and we think about how
many global investors hold our bonds, all the rumors that
(08:20):
maybe certain nations might be willing to weaponize their holdings
if the dispute with the US over trade escalates, does
that concern you?
Speaker 3 (08:29):
You know, there's no free launch.
Speaker 1 (08:31):
The reason why people own US dollar is because they
like to own US dollar asset. There is a very
strong case for American exceptionalism. The fact that the financial
systems are very liquid and very well run, and that
if you, for example, a Japanese investor, where it's about
a trillion dollars of US debt held by Japanese institution,
(08:55):
it's a good place to be even hedge back in yen.
And I think that's that's really an important fact to
remember in terms of the flow of fund and who
needs to put money aware.
Speaker 2 (09:09):
Is the treasury market healthy right now?
Speaker 3 (09:12):
Totally? You did not.
Speaker 2 (09:14):
You weren't concerned at all about what transpired that first
week to April, about the potential come up in the
system or that mismatch between buyers and sellers.
Speaker 3 (09:22):
No.
Speaker 1 (09:23):
We on the contrary, I think we've seen very liquid
market voice and treasury and in credits, and to be honest, yeah,
you know, markets have been remarkably well behaved. We had
a couple of difficult days during COVID before they fed intervened, but.
Speaker 3 (09:42):
It's been very with sailing since.
Speaker 1 (09:44):
And you know, the markets offer plenty of opportunity to
change your mind. One of the good contribution have been
ETF where ETF have a low people like us to
do portfolio, trade, rebalance or book and to use this
liquidity to move assets around and and I would, I
(10:05):
would really and fisis this The markets are quite liquid?
Speaker 2 (10:09):
I promise not all my questions are pessimistic, but I
do have wonder lie with the guard I mean, you
had a market, they had to deal with the trade
issues that hasn't been resolved, but they certainly made some
degree a piece with where we are. There's now a
big budget battle that's about to take place in Washington,
and I do wonder as the lead leader of the
biggest bond company bon investor out there is there concern
(10:34):
that our fiscal deficit and the potential remedies that are
being discussed in Congress could exasperate the situation and the
fixed income market.
Speaker 1 (10:43):
That's the that's the wonder of being the reserve currency.
Speaker 3 (10:47):
Everything else being equal, you could.
Speaker 1 (10:49):
Run a slightly higher deficit than you would otherwise. And
I think that, of course, people will look at the
amount of deficit and you know, it is all the
willingly likely that.
Speaker 3 (11:01):
The deficit is not going to get reduced.
Speaker 1 (11:04):
But once again, would you rather own very high quality
asset in the US or.
Speaker 3 (11:11):
Would you rather own bonds? In Southern Europe.
Speaker 1 (11:15):
You can decide which one you would rather own. That's
the reality. The reality is you need to invest somewhere so.
Speaker 4 (11:22):
You're not worried about it's a lot of debt. It's
a physical situation. It's been a lot of debt for
a long time. But now we're at levels we haven't
seen and so I'm just curious, is there some point?
It sounds like you're saying, well, where else are you
going to go?
Speaker 1 (11:36):
Right?
Speaker 4 (11:36):
And it's kind of part of the us being the
market in the world, So like, should we just accept it?
Speaker 1 (11:44):
No?
Speaker 3 (11:44):
I think I would. I would. I would reply with
a quote.
Speaker 1 (11:47):
That I heard Janet Yellen gave in a private conversation.
She said, all we can say is it's not a
problem until it becomes a problem, and so but but
it's a deeper it's a deeper meaning maybe that it
appears like there's a tipping point, which is very hard
to guess where all of a sudden, either because the
(12:11):
issue will lose credibility or because the policy.
Speaker 3 (12:15):
Doesn't make sense to market participant. People all of a
sudden don't want to be the marginal buyer.
Speaker 1 (12:20):
And I think that's the analysis we constantly make in
terms of what's the right level to clear the market? Man,
when we.
Speaker 4 (12:29):
Had the disconnect between the equity markets selling off a bunch,
we saw yield spiking, right, we were trying to make
sense of it, right, it just didn't seem to come together.
Are you telling investors watch the bond market equity is
kind of do like, how do you make sense of
something like that?
Speaker 1 (12:43):
Well, you could say that it did make sense because
the market all of a sudden said we're going to
get in the worst possible situation.
Speaker 3 (12:49):
We're going to get into stackflation.
Speaker 1 (12:51):
Right, and in a case of stackflation, I can remember
seventy three and seventy four. Now there were real macro
reason with no shock, but stackflation is a real ugly
problem because everything goes down and there's no place to
hide except cash, and even cash because of inflation, you
lose money. And I think you saw the price of
(13:12):
gold reacting to this, and so if you use my
frame of mind, yeah, then I think it sort of
makes sense. It's not a pretty picture, and I think
the market corrected pretty quickly, and say, you know what
stackflation is, by father, not the most likely scenario, but
the odds of a recession must be slightly of a fifty.
Speaker 4 (13:32):
Do you agree stackflation not likely?
Speaker 3 (13:36):
Yes, free, it's not likely. Okay, it's not likely, got it?
Speaker 1 (13:41):
And I think stackflation is the nightmare or for central banker. Yeah,
and most of them haven't seen it. You know, you
have to remember that, market participants. There's only one good
thing about being old is you've seen my market cycle. Yeah,
and you know, I remember, for example, the night one
ninety two crisis with the SNL.
Speaker 3 (14:02):
You know, we had the Milken conference.
Speaker 1 (14:05):
You know, people had border a lot of I yelled
debt and some of it had to sell.
Speaker 3 (14:10):
So you remember that. You try not to make the
same mistake.
Speaker 1 (14:13):
You remember nineteen ninety eight, you remember two thousand and one,
in two thousand and two, and of course remember the
Great Financial Crisis.
Speaker 3 (14:19):
And each crisis is different, but.
Speaker 1 (14:21):
You have a frame of reference where you've seen ups
and downs in the financial markets.
Speaker 2 (14:26):
I want to talk specifically about your business, and I
mean you've got a big private business, private credit business
alongside the public credit business. And we've been talking a
lot over the last couple of days about how all
these markets seem to be overlapping. There's sort of this
Venn diagram between public markets, private markets, credit equity, et cetera.
Are they in conflict with each other or are they
complimenting each other.
Speaker 1 (14:46):
I think they complement each other, but they may not
offer the same value at every point in time. So
I'll give you a very simple example. There's a reasonable
case to be made that we have a probability.
Speaker 3 (14:59):
Of a recession slightly above fifty percent. If that's the case,
you don't want to own.
Speaker 1 (15:07):
Higher credit, and you probably don't want to own derect clending.
Why because the company all leverage, they are weak single
B they may or may not be in the industry
you want to be in.
Speaker 3 (15:23):
And so if you have a recession, you'll see losses.
Speaker 1 (15:26):
By the way, losses are normal, it doesn't mean there's
anything wrong. But when we think of optimizing our portfolio,
we find better opportunity to invest than the weaker credit
at this stage of the business cycle.
Speaker 2 (15:41):
And then making those decisions, I mean, you reference just
a second ago about all the books you have to
figure out where the dollar is going to go. I
assume that there's got to be a big technological component
to that. When you took over back in twenty sixteen,
you made a big push to add more technology resources
to what you guys do, and given what's inspired over
the last few years with AI and the newfound interest
(16:03):
in that space, I'm wondering how much of that has
become a component of the analysis and decision making process, A.
Speaker 3 (16:09):
Very large one, And that's a very good question if
you think about it. You know, what do we want?
Speaker 1 (16:13):
We want great people to work for PIMCO and to
stay for as long as possible, and then we want
the best technology and the most innovative quant and marry the.
Speaker 3 (16:25):
Two together and hope that it works.
Speaker 1 (16:29):
And the EI revolution for us is the ability to
manipulate a lot of data coming from very disparate sources,
analyze them and get to a tool to help making
decisions which is incredibly granular. So we are very very
(16:51):
big player in mortgages. Everyone has a mortgage somewhere. We
have a totally unique database. And what I mean by
database is not only numbers, it's picture, its location, it's
conversation with the mortgage broker. And so you get an
edge because you have an ability to crunch through an
(17:13):
enormous amount of data and get to another granular level
of decision that our.
Speaker 3 (17:20):
Human brain would need a longer to be able to
do as we go pretty quickly. I'm just going to
tell you it's very fast.
Speaker 4 (17:28):
He's very very fast, Nanny. I'm so thoughtful, so helpful.
Thank you so much for asking for our audience. Really
appreciate it many Reven the Pimco CEO
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