Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We begin with a big issue on Wall Street, twenty
Speaker 2: five or fifty bonyards falling. Going into this week's finally
Speaker 2: bound at Central Bank meeting. The pim code team writing
Speaker 2: the post pandemic inflation shock at rate hiking cycle produced
Speaker 2: a generational reset in bond yields. Central banks have largely
Speaker 2: succeeded in bringing down inflation to two points somethink and
Speaker 2: a poister begin cutting rates, creating a compelling multi year
Speaker 2: outlook for global fixed income. I'm pleased to say that
Speaker 2: the boss over at PIMCO, Many Roman, joins us. Now
Speaker 2: for the next thirty minutes or so, maney, it's going
Speaker 2: to see you, sir.
Speaker 3: Good to see you. Thank you for having me.
Speaker 2: Put us out of our misery. Twenty five or fifty tomorrow.
Speaker 2: What's it going to Well, we're in the camp of
Speaker 2: twenty five. But you know, I always say we have
Speaker 2: a crystal ball and at the end of the day,
Speaker 2: we'll see what the market does. You know, it may
Speaker 2: very well be that it doesn't make that much of
Speaker 2: a difference. And our view is that there will be
Speaker 2: three cuts of twenty five and at the end of
Speaker 2: the day. What matters is where we are at the
Speaker 2: end of the year. Well, let's talk about the destination.
Speaker 2: This is a three pound act on Wednesdage. You know,
Speaker 2: it's a decision. It's a set of forecasts and a
Speaker 2: news conference and a big conversation around this table for
Speaker 2: the last several months. What's the destination, what are they
Speaker 2: aiming for, what are they shooting for? Where is this
Speaker 2: land in the next eineteen months.
Speaker 4: Well, I think you can say that there's less inflation
Speaker 4: right now, and that in the absence of new data,
Speaker 4: the destination will be to have lower rates, and the
Speaker 4: FED would be very data dependent, and I think I
Speaker 4: think sometimes one under estimate how careful they are about
Speaker 4: new data and how they want to be able to
Speaker 4: change their opinion. And so if you kind of use
Speaker 4: this framework, you sort of said, let's do twenty five
Speaker 4: and then let's see what we are, and then.
Speaker 3: Probably to twenty five and twenty five.
Speaker 4: But I think the total sum of the rate cuts
Speaker 4: may matter more than how they do it, which is.
Speaker 1: The reason why people are looking forward and saying maybe
Speaker 1: the neutral rates three and a half percent, and oh yeah,
Speaker 1: look at that the two year right now it's about
Speaker 1: three and a half percent. Back in June, when you
Speaker 1: put out the outlook for PIMCO, there was a feeling
Speaker 1: that intermediate bonds really had a fantastic investment proposal proposition
Speaker 1: just simply because there was yield. Do they still after
Speaker 1: the rally we've seen, we still do think so.
Speaker 4: And listen, the exciting thing about being at PIMCO right
Speaker 4: now is that fixed income is quite attractive.
Speaker 3: And you know, we we.
Speaker 4: We are in the business of fist and family, right
Speaker 4: so when rads are very, very low, it's harder to
Speaker 4: be that excited about fixed income. And when you can
Speaker 4: build portfolio and get a yell of six six and
Speaker 4: a half, you become very excited. And you know, we
Speaker 4: very focus on treasury, but the reality is there is
Speaker 4: a lot of value in other part of the segment.
Speaker 3: I set back being one of them, and.
Speaker 4: You know, we we're excited about what we see. And
Speaker 4: at the end of the day, the yield on the
Speaker 4: portfolio is a good predictor of the return that the
Speaker 4: investor experience. And so what I think is exciting about
Speaker 4: fixed income right now is you can build a portfolio
Speaker 4: and get a return of sixty six and a half
Speaker 4: percent with a serial of different instruments.
Speaker 1: It used to be that bonds did better in bad
Speaker 1: times and worse in good times. Are we heading into
Speaker 1: a worse time where people go to bonds for safety
Speaker 1: or is this on just an absolute basis yields are higher.
Speaker 4: My partner Dan ivested, and I'm going to calld him
Speaker 4: because because actually he has a.
Speaker 3: Very good line.
Speaker 4: Bonds may be the most attractive asset class. And I
Speaker 4: think that there's an absolute argument and then there's a
Speaker 4: relative argument. And I think the relative argument is to
Speaker 4: say you need to build a port for you. You need equity,
Speaker 4: you need fixed income, you need some read to state,
Speaker 4: you need.
Speaker 3: Some private asset.
Speaker 4: And at the end of the day, fixed income is
Speaker 4: much more attractive than equity, given the earning yield and
Speaker 4: given the evaluation of the equity market. And I think
Speaker 4: that's one of the argument for owning a larger part
Speaker 4: of fixting come. And I think when I travel the world,
Speaker 4: I think that people are under invested in fixed income
Speaker 4: and a lot of them are looking at putting more
Speaker 4: money into fixed income. And whether they do it tomorrow
Speaker 4: or whether they do it two weeks from now or
Speaker 4: two months from that, I don't know, But the reality
Speaker 4: is people were under invested values part of the fixed
Speaker 4: incop market, and they're looking to readjust the allocation.
Speaker 2: Have you got confidence we've re established the invest correlation
Speaker 2: between bonds and stocks.
Speaker 4: I don't know what I don't know, and I think
Speaker 4: correlation filctrate over time. I think that fixed income have
Speaker 4: a role in the portfolio construction, and I think they're
Speaker 4: there for a reason. But of course credit spread on
Speaker 4: the how you market are correlated to equity prices. So
Speaker 4: once again, I think one needs to be careful about
Speaker 4: how you frame the question and how you conclude.
Speaker 2: Well, like I said, I mean more specific by saying
Speaker 2: to treasuries, have treasuries re established an invest correlation with equities?
Speaker 2: Because one of the reasts that we've seen established over
Speaker 2: the last few years, particularly given the central focus was inflation,
Speaker 2: is that when bombs sold off, equities did too.
Speaker 3: That story we left that hopefully hopefully we have.
Speaker 4: But I think remember that we also saw with the pandemic,
Speaker 4: really an unpreced edted program of none creation, which sort
Speaker 4: of through everything and our economic textbook in terms of
Speaker 4: how we thought about the correlation. And so I'm careful
Speaker 4: about what I said, because the data are just so.
Speaker 3: Skewed in terms of what we see.
Speaker 4: And I think, you know, you can make the argument,
Speaker 4: for example, that part of the reason why the US
Speaker 4: economy has done so much better than any other places
Speaker 4: is that the package in terms of the pandemic has
Speaker 4: been so much bigger than another country. And at the
Speaker 4: end of the day, all you can do is cross
Speaker 4: sectional analysis and try to compare different country. But there's
Speaker 4: so many other valuable that comes into the picture that
Speaker 4: you don't want to understate the enormous creation of great
Speaker 4: company in the US versus Europe, for example, and so
Speaker 4: and so, I think we try to always be careful
Speaker 4: about making definitive conclusion when it comes to correlation and
Speaker 4: when it comes to cross sectional comparison between different country.
Speaker 1: Another way to frame this question is when you travel
Speaker 1: the world and you talk to international clients who are
Speaker 1: under invested in fixed and come in the United States,
Speaker 1: how many of them turn to you and say, what
Speaker 1: about the US deficit?
Speaker 4: Well, my friend and partner Richard Clarida, used this very
Speaker 4: American expression and says, the US is make sure I
Speaker 4: make sure I get that right.
Speaker 3: Car the cleanest dirty shirt. And you know.
Speaker 4: We have debated quite a bit at or forum about deficit,
Speaker 4: and you know, deficit do matter, and they do matter,
Speaker 4: and at some point in them there's a tipping point,
Speaker 4: but we're not there. And the reality is it's a
Speaker 4: huge competitive advantage to be the reserve currency. People need
Speaker 4: to own dollars. And the reality is we don't think
Speaker 4: there's a crisis coming and that the LEVEL can and
Speaker 4: the US can have suddenly a high level of debt
Speaker 4: versus historical precedent and be able to function just fine.
Speaker 5: When will the US get there? And do you see
Speaker 5: either party have any impetus to try to reign and
Speaker 5: spending so.
Speaker 4: To quote my partner once again, Leady Countrill, who comes
Speaker 4: often here on the show. No, we see no impetus
Speaker 4: to try to deal with the budget deficit. The only
Speaker 4: real example we have is the United Kingdom. And I
Speaker 4: think that the United Kingdom was actually quite interesting because
Speaker 4: you saw a situation where the bond market reacted so
Speaker 4: violently to the least trust proposal that all of a
Speaker 4: sudden they had to change, and had to change really
Speaker 4: really quickly. And I think I think that this example
Speaker 4: of what happened in a very developed country, and how
Speaker 4: the Bank of England reacted and reacted really quickly with
Speaker 4: the LEDI situation and the pressure in the guilt market
Speaker 4: and in the pension market will be a textbook example
Speaker 4: of why markets reac act quite strongly when something outrageous
Speaker 4: come Well.
Speaker 5: We have a Bloomberg survey to that point that says
Speaker 5: Kamala Harris her a victory for her in the White
Speaker 5: House would be better for treasuries and worse for stocks,
Speaker 5: vice versa for the foreign president.
Speaker 3: Would you agree with that scenario?
Speaker 4: I think, I think there's so many unknown you know,
Speaker 4: it depends, it depends on what happened in the House.
Speaker 3: It depends on what.
Speaker 4: The winner can do in terms of program how this
Speaker 4: is all going to pan out. I would be very
Speaker 4: careful about making any any prognosis on this on this matter,
Speaker 4: I think, you know, when we when we think about
Speaker 4: the world, you know, I realized politics is really important.
Speaker 4: But at the end of the day, that's not how
Speaker 4: we invest. We invest because we find value and we
Speaker 4: find opportunity, and we try to bat cheap, and we
Speaker 4: try to manage portfolio and think about risk carefully and
Speaker 4: ride different cycle and and and deal with many other
Speaker 4: factor than politics. And you know, there's a few exceptions
Speaker 4: if you talk to my partner from ALDA one in
Speaker 4: emerging market, all of a sudden in emerging market sometimes,
Speaker 4: but it do really matter because they are.
Speaker 3: Very big changes and very big different outcomes.
Speaker 2: The struggle money as you notice that some dms have
Speaker 2: traded like ems over the last few years. And you
Speaker 2: mentioned the UK. So I won't put words in your mouth,
Speaker 2: I do want your views. Well, it does feel like
Speaker 2: a self imposed debt break in the United Kingdom, and
Speaker 2: I'm wondering whether from your perspective, for even the team
Speaker 2: that actually makes UK government a little bit more attractive here.
Speaker 3: We think it's very attractive. We like the UK, We
Speaker 3: like Australia.
Speaker 4: We think that the UK fits very well in the portfolio,
Speaker 4: and they will need to cut and cut rates significantly.
Speaker 4: And so when you think of a global outlook, the
Speaker 4: UK looks good for a fixed income.
Speaker 2: Investor relative to the United States, say in terms of
Speaker 2: duration risk.
Speaker 4: Relative to other countries in Europe, certainly compared to European bonds.
Speaker 3: We also like the US.
Speaker 4: So you know, if I want to kind of sum
Speaker 4: up things, you know, we like the U ways, we
Speaker 4: like the UK, well like Australia.
Speaker 2: Man, I want to come back to the bond market
Speaker 2: and just talk about a dynamic. This start to really
Speaker 2: take hold over the last month or so the two
Speaker 2: year ten year segment of the yield curve. Things just
Speaker 2: starting to normalize, but the steepness almost back to double
Speaker 2: figures this morning. As we get that curve normalization. Can
Speaker 2: you walk me through how much things change in fixed
Speaker 2: income Whether you're starting to see that cash deployed a
Speaker 2: little bit more.
Speaker 4: Well, I think there's that, And of course people kind
Speaker 4: of look at the cash they have on the sideline
Speaker 4: and there's about ten trillion dollars of money in cash
Speaker 4: where they will think to reinvested, either by extending duration
Speaker 4: or by going longer, or by taking a bit more
Speaker 4: credit risk. So there is a wall of money out there,
Speaker 4: and I keep on saying this, and of course some
Speaker 4: of it is cash corporate and will remain cash corporate.
Speaker 4: But I think people have been very much on the
Speaker 4: sideline rolling short term treasury bill and this money will
Speaker 4: get redeployed and how fast and how.
Speaker 3: Remains to be seen.
Speaker 4: The other thing which I think you may find interesting
Speaker 4: is they are a lot of opportunity in relative value
Speaker 4: in the fixed inker market, and in particular think of Japan.
Speaker 4: You know, nothing happened in Japan for fifteen years, and
Speaker 4: then all of a sudden, we now have positive rates
Speaker 4: in Japan, and there's a lot of haarbitrush to be done.
Speaker 4: It's across the curve, it's with swap, it's with different
Speaker 4: instrument and all of a sudden, they are sources of alpha,
Speaker 4: as we tend to call them, where basically they didn't
Speaker 4: exist two years ago, which have come back to the
Speaker 4: market in Spain. How long it lasts, we'll find out,
Speaker 4: but it should be a very exciting opportunity in terms
Speaker 4: of the whole market, in terms of delivering better performance.
Speaker 1: How difficult is it to pry that cash out of
Speaker 1: people's cold hands, given the fact that people really do
Speaker 1: like what they're getting. And oh, by the way, there
Speaker 1: are fifteen other fund managers out there also trying to
Speaker 1: get them to pry that cash out of their hands.
Speaker 4: Well, I will tell you competition is good. Is good
Speaker 4: for everybody. And at the end of the day, there's
Speaker 4: two things there is when the FED cuts rate, eventually
Speaker 4: the short end of the curve becomes less attractive, and
Speaker 4: I think you'll see cash moving.
Speaker 3: And from a.
Speaker 4: Competitive standpoint, we want to do the best possible job
Speaker 4: in terms of big and fiduciary and doing a good
Speaker 4: job in terms of performance and being there for our clients.
Speaker 4: And we compete every single day and hopefully we'll win
Speaker 4: more than we lose.
Speaker 3: But all we can do is trial best and we
Speaker 3: try very hard.
Speaker 1: Where's the edge, where's sort of growth concentrated in or
Speaker 1: is trying to be concentrated with respect to PIMCO in
Speaker 1: the say five years ahead.
Speaker 4: Well, Asia has been quite exciting lately, and there's a
Speaker 4: lot of things happening in Asia, and you can sort
Speaker 4: of think of our business as being linked to GDP
Speaker 4: in terms of the saving rates and people when they
Speaker 4: save more, invest more. And so Asia has been quite exciting.
Speaker 4: And the US is an absolutely wonderful place. I mean,
Speaker 4: it's a big market and there's a lot to be done.
Speaker 4: We have a very good Canadian business, we have a
Speaker 4: very good Latin American business.
Speaker 3: There's a lot of good things happen.
Speaker 4: But the one variable we don't control is of course
Speaker 4: the macroeconomic situation. And so if you have a real
Speaker 4: reversal and you have, for example of a session, and
Speaker 4: let me just say it's not our scenario, but if
Speaker 4: you have a real recession, people loocome more discoversed and
Speaker 4: take some money away. And at the end of the day,
Speaker 4: you know we here for the next twenty years, not
Speaker 4: for the next twenty minutes. And so you know we
Speaker 4: have very liquid portfolio. People can take the money whenever
Speaker 4: they feel like and reinvest and so on. And we
Speaker 4: understand that people need money for all.
Speaker 3: Sorts of reasons.
Speaker 1: There are a number of behemoth asset managers. PIMCO overseas
Speaker 1: one point eight trillion dollars.
Speaker 3: How much bigger could you see it getting? It's all
Speaker 3: about performance.
Speaker 4: And I always say the great thing about not being
Speaker 4: public and not having to give quarterly earnings is you
Speaker 4: focus on what matter. The circle of truth is if
Speaker 4: you perform, they will come.
Speaker 2: You said this last form we spoke, but it's an
Speaker 2: success by assets. We measure our success by the returns
Speaker 2: we provide. Does it disappoint you? Is it slightly upsetting
Speaker 2: that people do measure your success by assets because they've
Speaker 2: been pretty stable now for the last decade. Black rock
Speaker 2: over the same period has multiplied. Is that disappointing to
Speaker 2: you that people junctually have that.
Speaker 4: I think we have a very different business model, and
Speaker 4: you know we were talking about Onemarth. We don't want
Speaker 4: to build waldmart Onemar is a fantastic company, but we
Speaker 4: have an opportunity set where we very carefully think about
Speaker 4: capacity and how much money we can put to work
Speaker 4: and what the right target return are for investors. And
Speaker 4: I think that by definition means that we won't be
Speaker 4: the largest asset manager and still be it when.
Speaker 2: It comes to asset management. Private markets comes up all
Speaker 2: the time and everyone's trying to make their own push.
Speaker 2: What does Pincock fit into that big push at the
Speaker 2: moment into private markets?
Speaker 4: So we we try to we try to focus on
Speaker 4: what we know how to do, and what we know
Speaker 4: how to do is fixed incum and so that includes
Speaker 4: as a matter of fact, everything which has to do
Speaker 4: with private market and fixed income, and it also involves
Speaker 4: real estate and there's a big realistate cycle that should
Speaker 4: be exciting. There will be pieces to pick and there
Speaker 4: will be cheap investment, both in debt and inequity and in.
Speaker 3: The private credit market.
Speaker 4: There's quite a unique opportunity in asset backed lending. That's
Speaker 4: where my friend Dan Iverson grew up in. We have
Speaker 4: been doing this for twenty years and the one thing
Speaker 4: which has changed, so to speak, is the banks need
Speaker 4: to free up capital and so they need to sell
Speaker 4: large portfolio of many different assets and do it fairly quickly.
Speaker 3: That's an opportunity for us.
Speaker 4: And so if they are good entry point and good
Speaker 4: asset to pick, we should be able to do quite well.
Speaker 1: What types of assets are talking about? Commercial? Are you
Speaker 1: going to be on residential?
Speaker 3: Slash all bonds? Banks?
Speaker 4: Let me just focus first on fixed income.
Speaker 3: You know, I think in fixed income there's a lot.
Speaker 4: To buy, and there's a lot to buy because the
Speaker 4: banks need to deliver. And so the banks, you can
Speaker 4: think about what they have on the balance sheet. They
Speaker 4: have loans that they've given to company and they want
Speaker 4: to get rid of it and so they sell it
Speaker 4: to us, and that I think is very straightforward. In
Speaker 4: real estate, you have a real estate cycle and there
Speaker 4: will be different things you can do. There will be
Speaker 4: some will need pref equity, some will need debt, some
Speaker 4: will need to buy equity, and we just need to
Speaker 4: make sure that it's cheap enough and that we think
Speaker 4: carefully about what happens and make sure we have an
Speaker 4: expected return which compan set it for the risk, and
Speaker 4: it needs to be high because it's a lot of
Speaker 4: risk in commercial real estate, for example. But we had
Speaker 4: a pretty fast cycle and hopefully we're going to be
Speaker 4: on the right side of the trade coming out of it.
Speaker 2: We've only got sixty seconds left with you. So the
Speaker 2: hardest question of the morning. What's more likely Arsenal winning
Speaker 2: the title or the Federal Reserve engineering a soft landing.
Speaker 3: Arsenal winning the title also one.
Speaker 2: Of the titles should I read into when I think
Speaker 2: about your real views on the economy?
Speaker 3: Then, based on now you just the counsle Is that good? No?
Speaker 3: You should? You should think about Arsenal? No, I think Look, Look,
Speaker 3: I think I think people.
Speaker 4: Are very people are very sometimes criticized the fat I
Speaker 4: think they do. They do a really really good job
Speaker 4: with a very difficult hand to play, and and and
Speaker 4: you know, they don't know what they don't know at
Speaker 4: the end of the day. And I think, I think
Speaker 4: it has been a tremendously complicated market to navigate for
Speaker 4: everybody over the past four years. None of us, none
Speaker 4: of us have so thought we would see a pandemic.
Speaker 4: And you know, from the investment standpoint and from a
Speaker 4: regulatory standpoint, and from the FED standpoint, I.
Speaker 3: Think we we have to learn a new playbook.
Speaker 2: It's been humbling for a soul. Money, It's good to
Speaker 2: see you and great when at the weekend. Thank you
Speaker 2: sir to appreciated money rhyme and the film cut