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