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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joey.

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Speaker 4: Isn't thal joe It's back?

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Speaker 5: What's back?

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Speaker 3: It's back?

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Speaker 4: They're back. No, it's real America trade.

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Speaker 3: Cell America trah. Various flavors of what the back could

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Speaker 3: have been, but all to be converging at one.

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Speaker 4: Yeah, I should have been more clear.

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Speaker 2: So we're recording this on January twenty first, and this

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Speaker 2: comes a day after we saw a pretty big sell

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Speaker 2: off in the market. What was interesting about that sell

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Speaker 2: off is it was a trifecta of US assets. So

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Speaker 2: you had the S and P five hundred down, bond

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Speaker 2: yields up, and the dollar index down.

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Speaker 4: Yeah as well.

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Speaker 2: And so obviously people are talking about is this the

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Speaker 2: start where the restart of the Cell America trade. All

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Speaker 2: of this is coming in the context of Trump's threats

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Speaker 2: against Greenland, lots of geopolitical risk. And I should also

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Speaker 2: just mention we are recording this literally at the end

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Speaker 2: of this discussion, Trump is due to speak at Davos.

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Speaker 2: I don't know why we do this to ourselves. So

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Speaker 2: all of this could change on a dime within like

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Speaker 2: sixty minutes.

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Speaker 4: But there's a lot going on, yeah.

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Speaker 3: And I probably won't change on a dime. And the

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Speaker 3: reason is because, well, yes, it is true that probably

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Speaker 3: the tensions in Europe over Greenland and NATO et cetera

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Speaker 3: are very important, Mark Karney having given a pretty extraordinary

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Speaker 3: speech yesterday. There's also the Japan element in the rising

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Speaker 3: bond yields in Japan, which is related to you know,

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Speaker 3: I don't know, abonomics two point zero, perhaps with the

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Speaker 3: new prime minister and so forth, and so then part

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Speaker 3: of the story yesterday, and you mentioned the trifecta sell off,

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Speaker 3: but part of the story yesterday sharp increase lately in

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Speaker 3: long end rates in the US and Japan. The forty

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Speaker 3: year bond in JGB, which never exists up until like

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Speaker 3: two thousand and seven, apparently hit four percent for the

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Speaker 3: first time in history. We were looking at sub four

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Speaker 3: percent ten year rates as recently as October in the

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Speaker 3: US actually maybe even as recently as December, an hour

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Speaker 3: closer to four point three again, So like those people

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Speaker 3: keep thinking like mortgages are going to come down, et cetera,

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Speaker 3: it's not gonna looking like so there is a lot

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Speaker 3: going on in terms of potential theoretical drivers, et cetera.

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Speaker 3: But the important thing is that rates at the long

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Speaker 3: end keep pushing up.

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Speaker 4: Well, this is the.

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Speaker 2: Debate, right, So Scott Bessen in Davos, like a lot

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Speaker 2: of people at the moment, was saying that he thinks

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Speaker 2: the US Treasury sell off was just you know, the

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Speaker 2: Japan effect. Yeah, and others think it's a geopolitical risk premium.

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Speaker 2: So you know, we need to get into all of this.

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Speaker 2: And we have the perfect guest, really, the perfect guest.

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Speaker 2: We're going to be speaking with, Manny Roman. He is,

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Speaker 2: of course the CEO of PIMCO. So Manny, thank you

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Speaker 2: so much for coming on out, thank you for having me.

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Speaker 2: Why don't we start with that last question. When you're

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Speaker 2: looking at bond yields today, how much of that do

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Speaker 2: you see as the geopolitical risk premium versus just to

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Speaker 2: follow through from the Japan sell off.

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Speaker 5: Well, I think the understands it's a mix of boths.

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Speaker 6: But when I was listening to you and when you

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Speaker 6: look at how much the market reacted, they didn't react

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Speaker 6: that much. I mean bondial went up five or six

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Speaker 6: BIPs yesterday on the tenure and the stock market is

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Speaker 6: down two percent. I mean, it's not exactly an earthquake.

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Speaker 6: And so I do think that the market is very

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Speaker 6: rational and essentially discount a lot of the noise and

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Speaker 6: look through it. The day where the market is really

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Speaker 6: concerned about something, you're going to see a much bigger reaction.

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Speaker 6: That's the first point. The second point I think is

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Speaker 6: the currency barely move. I mean I was looking at

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Speaker 6: euro and sterling this morning. I mean we flat as

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Speaker 6: a pancake. The move away from the dollar, yes, as

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Speaker 6: a secular trend, the fact that you want to diversify

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Speaker 6: away from the dollar makes sense, and you want to

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Speaker 6: have other currency and the dollar, but the dollar remains

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Speaker 6: the real reserve currency of the world. And so I

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Speaker 6: take care of this with a grain of salt. And

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Speaker 6: we animals in the best possible way, and we look

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Speaker 6: at the screen and we tend to overreact to what

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Speaker 6: we hear, and so on and so forth.

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Speaker 3: I was thinking about this last night looking at the

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Speaker 3: s and p. Five hundred four.

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Speaker 4: You were thinking about how you're an animal looking at

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Speaker 4: the screen.

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Speaker 3: I was thinking about exactly. I wasn't in a moment

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Speaker 3: of being an animal looking at the screen last night.

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Speaker 3: It did occur to me as like, Okay, S and

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Speaker 3: P had fallen two percent on Tuesday the twentieth. However,

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Speaker 3: in the context of an incredible year and the incredible

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Speaker 3: fifteen years and incredible to it's not that much. Nonetheless,

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Speaker 3: I guess it's the confluence of headlines coming together. It's like, oh,

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Speaker 3: I'm going to pay attention to this two percent down date.

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Speaker 3: But I certainly take your point. These are modest moves

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Speaker 3: in the grand scheme of things. On the other hand,

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Speaker 3: this upward pressure that we continue to see on the

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Speaker 3: long end of curves setting aside one week or whatever,

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Speaker 3: whether we're talking about Japan, the US, elsewhere, like, what

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Speaker 3: is the bigger story that we're like taking from.

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Speaker 6: Well, I think Japan is quite a peculiar situation, So ok,

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Speaker 6: let me start with the US because it's the it's

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Speaker 6: the easiest thing. Look, rates have been essentially in a

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Speaker 6: ranch for the past two and a half, and I

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Speaker 6: think the Treasury and the FED.

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Speaker 5: Will be very focused on the long end of the curve.

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Speaker 6: And I think that fixed income offers a real good

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Speaker 6: entry point in terms of investment. I mean, we talked

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Speaker 6: about the ES and bds and p's very expensive. Investors

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Speaker 6: are going to look at, you know, long term fixed

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Speaker 6: income and say I can make six or seven percent

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Speaker 6: holding a basket of fixed income that looks really attractive.

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Speaker 6: And so I think every time yelled back up, you

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Speaker 6: see money coming back. I talk about pim Colder flows

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Speaker 6: have been incredibly good over the past twelve months. You know,

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Speaker 6: people have come and bought US asset and the trend

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Speaker 6: is very clear, nothing is changing, and we have people

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Speaker 6: or basically saying I can get equity like Wittern using

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Speaker 6: fixed income, and for as long as that remains the case,

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Speaker 6: I think the rates are very bounded in terms of

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Speaker 6: where they're going to go. Japan is a very specific situation.

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Speaker 6: I just came back from Japan last week. I mean,

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Speaker 6: you feel bullish. I think everyone you meet is bullish equity.

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Speaker 6: You know, I started my career in nineteen eighty seven.

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Speaker 6: It's the first time that I see the nick above

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Speaker 6: when I started. I mean, it's it's unbelievable, but yes,

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Speaker 6: you know, there is for the first time inflation and

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Speaker 6: the long end of the curve is probably going to

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Speaker 6: go higher, and.

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Speaker 5: That's probably overall a good thing.

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Speaker 6: Now, the super secular trend is the demographic pressures are

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Speaker 6: a real problem, a real problem. But I think one

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Speaker 6: other thing we try to do is look at the

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Speaker 6: liquid instruments. So the four year JGB may not be

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Speaker 6: the most liquid instrument. The tenure GGB is a hard

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Speaker 6: and you know the same goes in the US, right,

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Speaker 6: and really want to look at the tenure. The thirty

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Speaker 6: is a bit of a different story.

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Speaker 2: You mentioned US treasuries trading in a band, and this

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Speaker 2: is something I wanted to talk about because you know,

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Speaker 2: before yesterday the non movement in the bond market was

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Speaker 2: really remarkable. So the move index is at its lowest

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Speaker 2: since I think like twenty twenty one. That's the bond

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Speaker 2: volatility index, And if you look at the thirty day

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Speaker 2: trading range for ten year treasuries, that was at the

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Speaker 2: tightest since the nineteen seventies, which is pretty remarkable. What

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Speaker 2: has that lack of volatility been like for a big

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Speaker 2: bond shop like PIMCO.

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Speaker 5: It's a funny thing.

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Speaker 6: We do like volatility because this volatility comes at far

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Speaker 6: and so we do like the opportunity to provide liquidity

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Speaker 6: and add interesting position to a portfolio, for sure, But

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Speaker 6: we need to scale up and scale down the risk

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Speaker 6: depending on what's happening in a market and depending on

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Speaker 6: the opportunity. And so we just came back from a

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Speaker 6: very strong period of performance. This is going to be

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Speaker 6: plenty to do. And it may be on NIM specific,

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Speaker 6: it may be on micro trend. I do think that

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Speaker 6: a competitive edge is not to be able to predictday

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Speaker 6: to day what's going to happen to the market. Or

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Speaker 6: competitive edge is to have a structural position, to think

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Speaker 6: about where value is, to optimize a portfolio, to think

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Speaker 6: about the downside risk. You know, that's what we know

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Speaker 6: how to do. And you know, it's an interesting market.

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Speaker 6: Some things are cheap. I would say rates are cheap,

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Speaker 6: and some things are rather tight. You know, investment grade

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Speaker 6: are probably rather tight, but in structural product and mortgages

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Speaker 6: there's a lot to do. So you have this environment

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Speaker 6: where you can build portfolio and sort of feel reasonably

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Speaker 6: comfortable that you will perform over the next two After

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Speaker 6: twenty four months.

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Speaker 3: Let's talk about go back to Japan, since you just

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Speaker 3: got back from Japan, and actually I don't think we've

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Speaker 3: done an episode on Japan since the election of the

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Speaker 3: new Prime Minister. But tell us a little bit more.

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Speaker 3: I mean, why, now, what's going on? You say everyone

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Speaker 3: feels bullish, etcetera. Tell us a little more color you

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Speaker 3: learned in your trip to Japan?

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Speaker 5: Well, I mean local.

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Speaker 6: We have a big Japanese office and their people in Pinko,

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Speaker 6: who knows a lot about this.

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Speaker 5: I mean, look, it's for twenty years Japan.

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Speaker 6: Has tried to restart inflation, and for nineteen years it

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Speaker 6: really hasn't worked. And then all of a sudden they

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Speaker 6: managed to get somewhere in a labor market which is

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Speaker 6: fairly tight, where immigration is a problem, and where when

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Speaker 6: you go there, I think there's a clear desire to

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Speaker 6: monitor immigration, and the new Prime Minister has been very

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Speaker 6: vocal about making sure that there's a limit in terms

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Speaker 6: of labor force moving into Japan.

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Speaker 5: Now, over the.

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Speaker 6: Medium term, that's a problem, but when you look at

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Speaker 6: the inflationary pressure, it's pretty clear that there's more inflation

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Speaker 6: in Japan that there has been for the longest possible time.

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Speaker 5: Now. The second thing is, I think you see other

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Speaker 5: factor in Japan that you haven't seen in a long time.

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Speaker 5: I was surprised by the fact that you have much

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Speaker 5: more activism in a stock market people to try to

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Speaker 5: take on a shipping company, trying to turn them around,

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Speaker 5: breaking down conglomerate. It's not the first time I hear that, Yeah,

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Speaker 5: but I think this time is certainly more real than

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Speaker 5: it has been. And then when you think of the

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Speaker 5: AI robotic trend, you know, the one thing Japan knows

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Speaker 5: how to do is to make things and to make

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Speaker 5: sophisticated product and I think that all of a sudden

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Speaker 5: there is a competitive edge that Japan has in terms

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Speaker 5: of a number of stock which looks attractive.

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Speaker 6: Forget about whether the price right or wrong, but in

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Speaker 6: terms of business model they're quite attractive.

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Speaker 2: Just on the bond sell off, how much of that

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Speaker 2: is the return or expected return of inflation versus debt

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Speaker 2: sustainability concerns Because this is the other thing that's been

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Speaker 2: very long running in Japan. You always hear it's a

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Speaker 2: heavily indebted country. Is this maybe the bond vigilantes finally

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Speaker 2: turning their attention to Japan.

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Speaker 5: So I was talking with Rich Clarita, who is a cheap.

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Speaker 6: Economy friend of the pod as one of the part

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Speaker 6: and I said to him, I said, you know, we

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Speaker 6: tend to look at that to GDP. What if we

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Speaker 6: look at debt to household savings and then you realize

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Speaker 6: for both the US and Japan that there's just a

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Speaker 6: lot of money in the US with the baby boomer

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Speaker 6: in Japan with savers who tend to not to spend enough,

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Speaker 6: and if you believe in fiscal policy and the fact

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Speaker 6: that eventually taxes will go higher, then I think that

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Speaker 6: the dynamic becomes quite different and you can have higher

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Speaker 6: sustainability in terms of debt because the ability to collect

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Speaker 6: money is there. You look at the US, for example,

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Speaker 6: you could have at some point in time high inheritance

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Speaker 6: taxes these eighty trillion dollars of Wales in the baby boomers.

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Speaker 6: Eventually that will go to the next generation, but it

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Speaker 6: will also go to the state, and it's a question

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Speaker 6: of how much goes to the state versus the next generation.

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Speaker 5: But there was the ability to text more.

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Speaker 3: It also comes down, I suppose, to the political capacity

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Speaker 3: of the state to tax because on math you say, look,

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Speaker 3: there's tons of private household assets. We have far more

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Speaker 3: wealth than we do have debt as a society, and

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Speaker 3: therefore it's just a matter of channeling in the right place.

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Speaker 3: But you also need the politics to be a bill

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Speaker 3: which actually gives me to a question that you might

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Speaker 3: have put on the sort of like CEO of a

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Speaker 3: big asset manager hat. You know, in California there's talk

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Speaker 3: about a wealth tax, et cetera. There's talk in Europe

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Speaker 3: about wealth taxes. There's people talking about like set up

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Speaker 3: my family office or whatever somewhere in the Gulf and

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Speaker 3: avoid all this. What do you see on that front?

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Speaker 3: Do you see money moving in a significant degree, high

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Speaker 3: net worth or ultra high net worth clients really thinking

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Speaker 3: about where their money is domiciled in a different way.

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Speaker 6: So you knew it was something good about me? Is

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Speaker 6: that French? And so I've seen firsthand the experience.

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Speaker 5: For wealth tax Yes, tell us more about that.

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Speaker 6: Well, it turned out to be a disaster because the

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Speaker 6: realities people can move. They decided to vote with defeat

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Speaker 6: and they didn't believe that the government would keep the

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Speaker 6: taxes a historically to the three percent of wealth, and

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Speaker 6: they decided to go to Belgium or to Switzerland and

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Speaker 6: to other places and so on. So I think the

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Speaker 6: evidence in terms of how well wealth tax work is

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Speaker 6: quite mixed. In California, you can cross the Nevada and

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Speaker 6: decide you want to live in Nevada, God forbid.

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Speaker 3: But then you have to live in Nevada.

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Speaker 5: But you've got to live in Nevada, but many other places.

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Speaker 6: And there's anecdotal evidence of people moving to Austin and

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Speaker 6: domme selling themselves in Austin and so and so forth.

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Speaker 6: And so I think one of the things about the

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Speaker 6: US tax code is you have competition among states in

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Speaker 6: terms of where people can reside and so on. So

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Speaker 6: now you know, there's many great things about California. We're

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Speaker 6: based in Newport Beach. We're happy to be in Newport Beach,

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Speaker 6: we pay high taxes, it's all good.

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Speaker 3: But do you see inta California or even on the

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Speaker 3: like right now? Are you hearing about high net worth

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Speaker 3: clients making these decisions right now?

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Speaker 6: Or thinking about old second hand? And all from the

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Speaker 6: tech industry. And I read the same news than you do.

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Speaker 6: I'll be honest with you. I never met Larry Page,

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Speaker 6: but I understand he moved to Texas. And you know,

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Speaker 6: by the way, one other thing we've done really, really

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Speaker 6: well is we set up an Austin office and it's

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Speaker 6: been a great success. So we have five munchred people

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Speaker 6: in Austin. It's a big business for us. There's a

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Speaker 6: great university there which produced a lot of grad in

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Speaker 6: in stem.

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Speaker 5: By alma mater, is it.

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Speaker 3: Yeah, we go thank you for saying that here we go.

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Speaker 6: Ninety percent of the graduate from UT stay in Austin,

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Speaker 6: so you're one of the exceptions. That was one of

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Speaker 6: the one of the but it's been a real good

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Speaker 6: thing for us.

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Speaker 7: Yeah.

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Speaker 2: I want to go back to the sell America trade

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Speaker 2: and dollar diversification because one of the things that I

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Speaker 2: think contributed to the atmosphere yesterday was we saw a

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Speaker 2: headline about a Danish pension fund selling its treasury holdings.

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Speaker 2: I think they have one hundred million or something like that.

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Speaker 2: Not mega, right, so a drop in the bucket of

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Speaker 2: the US treasury market. But the fact that a pension

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Speaker 2: fund is saying we're going to get rid of all

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Speaker 2: our exposure because things are just too unpredictable obviously feeds

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Speaker 2: into concerns about again that geopolitical risk premium. When you

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Speaker 2: see a headline like that, what goes through your mind.

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Speaker 6: That there is an upset Danish pension plan for a

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Speaker 6: reason that I think we can understand, but that in

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Speaker 6: the large scale of thing groups that's absolutely nothing. And

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Speaker 6: you know, one of the thing when you work for

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Speaker 6: Pimcot that you see is country with high savings rate

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Speaker 6: and low population. Canada, Australia need the US to put

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Speaker 6: capital to work because the local market is too small.

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Speaker 6: So imagine, for example, that you are one of the

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Speaker 6: super animation in Australia. The reality is you need the

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Speaker 6: US to put money to work. Your local market is

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Speaker 6: too small. You're not going to put fifty percent of

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Speaker 6: your assets in Asia and Europe.

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Speaker 5: I don't know. I mean, I'm European.

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Speaker 6: There's many things that I love about Europe, but the

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Speaker 6: investment opportunity may not be as exciting as it should be.

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Speaker 6: We haven't seen growth over the past six years. It's

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Speaker 6: a problem. So the other trend which is happening exactly

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Speaker 6: at the same time that we've been very involved with

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Speaker 6: is the AI built up and the fact that at

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Speaker 6: the same time you have the set America at the

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Speaker 6: same time you have an enormous amount of money coming

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Speaker 6: into AI and data center and building up a whole

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Speaker 6: new ecosystem, and that I think will provide exciting investment

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Speaker 6: opportunity for you of people.

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Speaker 5: So you have to wait, the two.

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Speaker 6: And the micro versus the politics, and you know, if

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Speaker 6: I was a guessing man, I think the macro wins.

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Speaker 3: Nonetheless, I'm going to still try to go do you into

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Speaker 3: the politics ish question? Because we're very flattered that you

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Speaker 3: came to visit us here at our offices in New

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Speaker 3: York City, But it's hard not to note that you're

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Speaker 3: not in Davos right now. I was there at twenty fifteen.

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Speaker 3: I got a fluid, so I hurt go again. What's

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Speaker 3: your excuse?

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Speaker 5: Oh? My excuse is I think? I mean?

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Speaker 6: Look, I always say my partner Dynavison, who was on

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Speaker 6: your putt yeah months ago, and I look, our life

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Speaker 6: belongs to a client.

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Speaker 5: We here, we have to manage your firm. Where he

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Speaker 5: had to sort of.

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Speaker 3: This is what they this is what say. Oh I

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Speaker 3: go to Davos because this.

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Speaker 4: Is where my clients are networking.

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Speaker 3: Yeah, networking. Why is Jamie Diamonds there, He would say,

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Speaker 3: my clients are here, meet with them?

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Speaker 6: Why would you're simple people? We we mind, we mind

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Speaker 6: the shop, We mind the shop. And look, people make

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Speaker 6: different decisions and so on and so false. And given

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Speaker 6: what's happening in the market, given everything else, I think

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Speaker 6: we're glad. We're glad we're in the office. I love

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Speaker 6: baking the office.

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Speaker 3: That big said. Tracy wrote about this yesterday in our newsletter.

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Speaker 3: The conversations that are happening in Davos, they're pretty serious.

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Speaker 3: I mean Mark Kearney talking about this sort of it's

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Speaker 3: time for us to not be a rupture. It's time

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Speaker 3: to not We can't be nostalgic about how the world

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Speaker 3: was five or ten or thirty years ago, et cetera.

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Speaker 3: But it's hard. Markets don't easily price in geopolitical turning points,

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Speaker 3: or when they do, it tends to be in an

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Speaker 3: l shape, et cetera. Surely you're like thinking about these things.

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Speaker 5: All the time.

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Speaker 6: And look, Mark Connie is a friend who used to

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Speaker 6: be on our global advisory board. I think he's a

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Speaker 6: fantastic human being in a great prime minister for Canada.

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Speaker 6: But I will read the transcript of his at the

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Speaker 6: same time you will. Yeah, And I understand the predicament

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Speaker 6: and that the question is how much Canadian bonds do

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Speaker 6: I want to own? And how much Kenadian dolla do

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Speaker 6: I want to own? And you know, information is very,

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Speaker 6: very efficient, and the reality is is Marxist to everyone

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Speaker 6: at the same time, he thinks, and that's the way

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Speaker 6: to work.

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Speaker 2: How do you actually factor in geopolitical risk into the

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Speaker 2: way you manage your portfolios? Because this seems to be

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Speaker 2: something that investors understandably struggle with, especially since a lot

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Speaker 2: of the outcomes are so binary. Right It's like, well,

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Speaker 2: either the US takes over Canada or the US doesn't

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Speaker 2: take over Canada.

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Speaker 6: I think we try to be incredibly humble and say,

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Speaker 6: why do we have an edge? And the reality is

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Speaker 6: if the three of us sees the exact same thing

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Speaker 6: at the same time, we don't have an edge. I

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Speaker 6: think we really really try to understand politics. We have

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Speaker 6: one of my partner, deb Control, is solely focused on

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Speaker 6: US politics.

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Speaker 5: She does a great job. We care, but we care about.

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Speaker 6: Micro issues that may not make it to a part.

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Speaker 6: We care about mortgage reform, we care about you know what, actually,

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Speaker 6: what can the president do in terms of Greenland? The

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Speaker 6: reality is he needs to a third of the Senate

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Speaker 6: and Congress approval. That seems like a lot. So we

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Speaker 6: care about smaller things and often we said, look, we

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Speaker 6: don't know anything that the market doesn't know, and so

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Speaker 6: we shouldn't build position based on politics, because the reality

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Speaker 6: is we always see the same thing at the same

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Speaker 6: time in some markets. You know, I come back to currency, Yeah,

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Speaker 6: I mean you look at the big currency. It's the

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Speaker 6: most efficient market in the world. I mean, if you

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Speaker 6: look statistically, then incredibly how to predict. I mean you

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Speaker 6: look at time series of you know, dollar yeen or

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Speaker 6: dollar sterning, a dollar euro and so on. I mean,

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Speaker 6: it is as close to white noise as anything can be.

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Speaker 5: So you build a portfolio.

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Speaker 6: Yes, there is a theme that the dollar may get weaker,

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Speaker 6: in which case you want to have other currency. You know,

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Speaker 6: we like the Australian dollars, we like the British pound.

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Speaker 6: Why because the economy is slowing down and you have

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Speaker 6: high rates and so there's plenty of room to cut.

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Speaker 6: And you say to yourself, that's something you want to own.

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Speaker 6: But you know, how much of your portfolio it is

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Speaker 6: twenty twenty five percent something like this, It cannot be

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Speaker 6: one hundred.

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Speaker 3: What do you make of the relentless bid in gold?

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Speaker 6: Honestly, these things where I just give up and I

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Speaker 6: say really, and I say, I don't understand that's one

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Speaker 6: of them.

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Speaker 5: Really, yes, totally, I think.

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Speaker 6: More well, I believe that assets are being moved by

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Speaker 6: two factor valuation and momentum. So the momentum in gold

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Speaker 6: is incredibly strong. I see it goes up every single day.

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Speaker 6: Someone is buying it. Maybe it's CTA, maybe it's individual,

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Speaker 6: maybe it's Central Bank.

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Speaker 5: I don't know.

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Speaker 6: When I don't understand, I stay on the sideline. But

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Speaker 6: the same talking I don't really understand crypto, and that's okay.

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Speaker 6: I think when you're in asset management, the one thing

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Speaker 6: you need to know is sort of stick to you

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Speaker 6: knitting and do what you know how to do. And

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Speaker 6: when you don't understand, sort of said, okay, that's not

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Speaker 6: my my gig. I shouldn't be doing this. Other people

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Speaker 6: understand it better than I do.

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Speaker 2: I think you gave us a very polite prompt earlier

440
00:21:39,119 --> 00:21:42,720
Speaker 2: to talk about mortgages and mortgage reform, and we should

441
00:21:42,800 --> 00:21:45,000
Speaker 2: do that because I know that PIMCO has been very

442
00:21:45,000 --> 00:21:48,080
Speaker 2: bullish on mortgages recently. I see a Bloomberg headline just

443
00:21:48,119 --> 00:21:51,240
Speaker 2: from last week saying pem Cove sees mortgage rates easing

444
00:21:51,680 --> 00:21:54,359
Speaker 2: on Fanny Freddy purchases. Those are part of the Trump

445
00:21:54,440 --> 00:21:58,000
Speaker 2: administration's efforts to bring down mortgage rates. But of course

446
00:21:58,040 --> 00:22:00,680
Speaker 2: at the same time, you know, we started out conversation

447
00:22:00,800 --> 00:22:03,880
Speaker 2: talking about the thirty year yield, which is ticking up.

448
00:22:04,800 --> 00:22:08,720
Speaker 2: How are you thinking of I guess those two tensions

449
00:22:08,800 --> 00:22:11,840
Speaker 2: in the market, so the efforts on the political side

450
00:22:11,880 --> 00:22:15,240
Speaker 2: to bring rates down versus bond yields, longer term bond

451
00:22:15,280 --> 00:22:17,879
Speaker 2: yields that seem to you know, be pretty stuck at

452
00:22:17,920 --> 00:22:18,560
Speaker 2: high levels.

453
00:22:18,760 --> 00:22:19,160
Speaker 5: That's right.

454
00:22:19,200 --> 00:22:23,600
Speaker 6: Look, it's a complicated tension. And if you put yourself

455
00:22:23,640 --> 00:22:27,520
Speaker 6: into the shoes of the US administration, what looks clear

456
00:22:27,560 --> 00:22:29,840
Speaker 6: to me is you want mortgage rate to be lower

457
00:22:29,920 --> 00:22:33,920
Speaker 6: rather than higher. And for that, part of it your control,

458
00:22:34,000 --> 00:22:36,879
Speaker 6: and part of it you don't. And it's inflation expectation.

459
00:22:37,640 --> 00:22:41,520
Speaker 6: It's the shape of the curve and its discipline, and

460
00:22:42,000 --> 00:22:44,679
Speaker 6: whether they get there or not, I don't know, is

461
00:22:44,680 --> 00:22:47,640
Speaker 6: the short answer. The thirty your mortgages and the whole

462
00:22:47,640 --> 00:22:52,000
Speaker 6: mortgage ecosystem looks cheap, and there's plenty to buy, and

463
00:22:52,119 --> 00:22:55,080
Speaker 6: it looks attractive. Yes, we do think that the purchase

464
00:22:55,119 --> 00:22:58,919
Speaker 6: will help in terms of valuation, but I don't know

465
00:22:58,920 --> 00:23:01,680
Speaker 6: what I don't know. You have midterm coming in November,

466
00:23:02,359 --> 00:23:05,240
Speaker 6: you know, it's too early to have any intelligent things

467
00:23:05,240 --> 00:23:07,399
Speaker 6: to say, but a lot of things can happen.

468
00:23:07,560 --> 00:23:10,040
Speaker 3: Speaking mortgage is one of the things that we've heard

469
00:23:10,080 --> 00:23:12,720
Speaker 3: over the past several weeks. The administration wants to make

470
00:23:12,760 --> 00:23:16,480
Speaker 3: it harder for big asset managers to buy single family homes.

471
00:23:17,000 --> 00:23:19,119
Speaker 3: To actually do anything like that might have to go

472
00:23:19,160 --> 00:23:21,520
Speaker 3: through Congress, but we did get an order last night

473
00:23:21,640 --> 00:23:24,080
Speaker 3: or a statement last night from the White House talk

474
00:23:24,119 --> 00:23:28,720
Speaker 3: about Fanny and Freddy putting bigger constraints on large institutional investors.

475
00:23:28,760 --> 00:23:31,119
Speaker 3: Like what do you make of some of these, I

476
00:23:31,160 --> 00:23:34,919
Speaker 3: don't know, populist inspired impulses to sort of change the

477
00:23:34,960 --> 00:23:36,720
Speaker 3: distribution of who could buy what assets?

478
00:23:36,760 --> 00:23:37,240
Speaker 5: Not much?

479
00:23:37,359 --> 00:23:40,280
Speaker 6: Okay, Well, well, I mean, look, you know, we don't

480
00:23:40,359 --> 00:23:42,639
Speaker 6: do that, but there is you know some people do

481
00:23:43,400 --> 00:23:45,720
Speaker 6: build a rent Yeah, you know, and they.

482
00:23:45,600 --> 00:23:48,000
Speaker 3: Said build to rents exactly. So I think that's already

483
00:23:48,040 --> 00:23:50,440
Speaker 3: a pretty big chunk of like what this whole phenomenon is.

484
00:23:50,560 --> 00:23:52,680
Speaker 5: Yeah, and look, it's hard to work.

485
00:23:52,880 --> 00:23:54,520
Speaker 6: Ye mean, it's the US, if you look at it

486
00:23:54,560 --> 00:23:57,000
Speaker 6: from a micro standpoint, has a shortage of house right,

487
00:23:57,080 --> 00:24:00,680
Speaker 6: so we're in more homes and the reality is, when

488
00:24:00,720 --> 00:24:02,760
Speaker 6: you look over the three year period, the only places

489
00:24:02,760 --> 00:24:07,000
Speaker 6: where cost haven't gone down is building and the reality

490
00:24:07,080 --> 00:24:10,639
Speaker 6: is we need more cheap houses, especially in affordable housing.

491
00:24:11,359 --> 00:24:13,720
Speaker 6: And that's a body seat that I think would be

492
00:24:13,800 --> 00:24:18,480
Speaker 6: quite good, but it's not because institution shouldn't own single house.

493
00:24:19,119 --> 00:24:21,240
Speaker 6: You need more houses. You need people to be able

494
00:24:21,280 --> 00:24:24,520
Speaker 6: to afford proper houses. And that's true I think in

495
00:24:24,560 --> 00:24:27,600
Speaker 6: a lot of state and there are states like you know, Texas,

496
00:24:27,640 --> 00:24:29,280
Speaker 6: for example, where you have plenty of space and you

497
00:24:29,280 --> 00:24:31,359
Speaker 6: look at the custom housing and it's going down. And

498
00:24:31,400 --> 00:24:34,800
Speaker 6: you have states like California where it's really complicated.

499
00:24:35,280 --> 00:24:38,040
Speaker 2: You need the robots to build houses. Right, So, okay,

500
00:24:38,080 --> 00:24:40,879
Speaker 2: speaking of robots, AI has come up a couple times

501
00:24:40,880 --> 00:24:44,040
Speaker 2: in this conversation. One of the interesting things that's happening

502
00:24:44,040 --> 00:24:46,240
Speaker 2: in the credit market right now is that AI is

503
00:24:46,320 --> 00:24:50,080
Speaker 2: becoming a much bigger force when it comes to investment

504
00:24:50,160 --> 00:24:53,960
Speaker 2: grade debts. So lots of big companies issuing even more

505
00:24:54,119 --> 00:24:58,639
Speaker 2: into that particular market. How does that change the credit

506
00:24:58,640 --> 00:25:01,160
Speaker 2: market if at all? Free How are you thinking about

507
00:25:01,200 --> 00:25:04,399
Speaker 2: the increased I guess exposure or presence of AI in

508
00:25:04,480 --> 00:25:05,480
Speaker 2: something like IG.

509
00:25:05,640 --> 00:25:08,480
Speaker 6: Well, I think you reported we try not to talk

510
00:25:08,520 --> 00:25:11,639
Speaker 6: about single positions, but you reported that we got involved

511
00:25:11,640 --> 00:25:14,480
Speaker 6: into a very large, twenty plus billion dollar transaction to

512
00:25:14,480 --> 00:25:17,320
Speaker 6: build data center. And some of these deals are going

513
00:25:17,359 --> 00:25:20,240
Speaker 6: to be incredibly attractive and someone be And so I

514
00:25:20,280 --> 00:25:25,800
Speaker 6: think what's really interesting is the big data center user

515
00:25:26,720 --> 00:25:29,840
Speaker 6: may actually be the double A or a better rated company,

516
00:25:30,480 --> 00:25:35,280
Speaker 6: and so Oracle or Meta or any of this company.

517
00:25:35,200 --> 00:25:37,880
Speaker 5: Actually have a capital structure where.

518
00:25:37,880 --> 00:25:40,720
Speaker 6: They may need a lot of money, but the money

519
00:25:40,760 --> 00:25:43,359
Speaker 6: is backed by market cap if you use a Mertan model,

520
00:25:44,080 --> 00:25:47,720
Speaker 6: which is above a trillion dollars, and so they pretty

521
00:25:47,760 --> 00:25:51,119
Speaker 6: safe investment. That's pretty unique. And so size is a

522
00:25:51,160 --> 00:25:54,600
Speaker 6: competitive edge that plays well to our strength. We position

523
00:25:54,680 --> 00:25:57,160
Speaker 6: ourself to have plenty of capacity to do it if

524
00:25:57,160 --> 00:25:59,920
Speaker 6: and when it comes. And then some people like Microsoft,

525
00:26:00,119 --> 00:26:04,159
Speaker 6: Google probably can do it with the cash and build

526
00:26:04,200 --> 00:26:06,320
Speaker 6: up the cash and don't need to issue that to

527
00:26:06,320 --> 00:26:08,400
Speaker 6: be able to do it. So different people will go

528
00:26:08,720 --> 00:26:09,840
Speaker 6: with different strategy.

529
00:26:10,359 --> 00:26:13,160
Speaker 2: My understanding is you made a pretty chunky return already

530
00:26:13,359 --> 00:26:16,600
Speaker 2: on that data center deal, and I've heard in the

531
00:26:16,600 --> 00:26:19,360
Speaker 2: market that since you did that, everyone wants to come

532
00:26:19,359 --> 00:26:21,640
Speaker 2: in and finance data centers. Are you seeing a lot

533
00:26:21,640 --> 00:26:24,840
Speaker 2: of copycats or competition in the space to get on

534
00:26:24,920 --> 00:26:26,040
Speaker 2: these new deals.

535
00:26:26,400 --> 00:26:29,040
Speaker 6: Well, not everyone can take twenty five billion dollars of

536
00:26:29,040 --> 00:26:33,119
Speaker 6: a deal. True, And so I always say, you know,

537
00:26:33,160 --> 00:26:35,200
Speaker 6: one of the things is done that we constantly think

538
00:26:35,200 --> 00:26:36,840
Speaker 6: about is what's a competitive edge.

539
00:26:37,320 --> 00:26:39,080
Speaker 5: And we're big, and we do one thing.

540
00:26:39,080 --> 00:26:42,360
Speaker 6: We do fixed income in old shapes and form, and

541
00:26:42,560 --> 00:26:45,160
Speaker 6: so we always say we're going to make money where

542
00:26:45,520 --> 00:26:46,240
Speaker 6: THO strength are.

543
00:26:47,080 --> 00:26:48,359
Speaker 5: And that's clearly one of us strength.

544
00:26:48,640 --> 00:26:51,000
Speaker 2: It's good to be PIMCO when it comes to new issuance,

545
00:26:51,320 --> 00:26:51,720
Speaker 2: for sure.

546
00:26:51,840 --> 00:26:54,960
Speaker 6: It is good to be PIMCO when it comes to

547
00:26:56,359 --> 00:26:59,199
Speaker 6: new issue. Where we were part of the structuring working

548
00:26:59,240 --> 00:27:02,639
Speaker 6: with in this case Morgan Stanley, and we understood the

549
00:27:02,640 --> 00:27:06,000
Speaker 6: credit quite well and it was something which fits into

550
00:27:06,080 --> 00:27:08,280
Speaker 6: a portfolio. It may very well be that the next

551
00:27:08,280 --> 00:27:10,760
Speaker 6: one doesn't fit into what we do, in which case

552
00:27:10,760 --> 00:27:11,200
Speaker 6: would pass.

553
00:27:11,720 --> 00:27:14,800
Speaker 3: Returns to scale are such a common theme in our

554
00:27:15,080 --> 00:27:19,680
Speaker 3: discussions last night. Size per se as a competitive advantage,

555
00:27:19,680 --> 00:27:22,040
Speaker 3: which is not always the case because sometimes you like

556
00:27:22,080 --> 00:27:23,919
Speaker 3: here are small and nimble. But it seems like in

557
00:27:23,960 --> 00:27:27,040
Speaker 3: many of these things we're talking about these days, size

558
00:27:27,080 --> 00:27:30,560
Speaker 3: is huge, you know, just like from the perspective of CEO,

559
00:27:30,720 --> 00:27:34,240
Speaker 3: and you know, this conversation sort of blends the line

560
00:27:34,280 --> 00:27:35,919
Speaker 3: of like what I would think of as a CEO

561
00:27:36,000 --> 00:27:40,359
Speaker 3: discussion and CIO discussion. Right when we're talking about rates,

562
00:27:40,400 --> 00:27:42,560
Speaker 3: it's a CIO discussion where we're talking about where you

563
00:27:42,600 --> 00:27:45,600
Speaker 3: have offices in Austin. There's kind of a CEO discussion,

564
00:27:45,640 --> 00:27:49,879
Speaker 3: but from the perspective of CEO, like where else are

565
00:27:49,880 --> 00:27:53,720
Speaker 3: you putting your chips besides you mentioned Texas and there's okay,

566
00:27:53,720 --> 00:27:54,439
Speaker 3: there's some migration.

567
00:27:54,560 --> 00:27:56,040
Speaker 5: I think Asia. I think Asia.

568
00:27:56,240 --> 00:27:59,080
Speaker 6: I think all the high growth market from a CEO

569
00:27:59,200 --> 00:28:03,000
Speaker 6: standpoint interesting. So we have a great Asian business and

570
00:28:03,160 --> 00:28:06,760
Speaker 6: when you look at the population, the savings rate, and

571
00:28:06,960 --> 00:28:09,359
Speaker 6: where there will be ten years from now, I think

572
00:28:09,400 --> 00:28:13,480
Speaker 6: it is incredibly important that we do extremely well in Asia.

573
00:28:13,880 --> 00:28:19,160
Speaker 6: And so we have offices in Japan, Hong Kong, Singapore, Taiwan,

574
00:28:19,800 --> 00:28:24,359
Speaker 6: Australia and they're doing great. The build up of wealth

575
00:28:24,800 --> 00:28:27,800
Speaker 6: is really really important, and that's before we start talking

576
00:28:27,840 --> 00:28:31,080
Speaker 6: about China. And so if you look at the super

577
00:28:31,200 --> 00:28:36,040
Speaker 6: secular horizon, Asia will become significantly bigger than Europe in

578
00:28:36,160 --> 00:28:40,320
Speaker 6: terms of the amount of money for asset manager and

579
00:28:40,360 --> 00:28:43,720
Speaker 6: what the opportunity set is. And I think that's pretty

580
00:28:43,760 --> 00:28:44,200
Speaker 6: clear to me.

581
00:29:00,560 --> 00:29:04,080
Speaker 3: Do you disicipate mainly in China ever, being a real

582
00:29:04,280 --> 00:29:05,200
Speaker 3: bigger opportunity.

583
00:29:05,360 --> 00:29:08,720
Speaker 6: I hope, So, I hope the market the market offer

584
00:29:09,360 --> 00:29:11,280
Speaker 6: a level playing field at some point in time and

585
00:29:11,400 --> 00:29:14,240
Speaker 6: something that all of us feel comfortable investing in.

586
00:29:14,600 --> 00:29:17,080
Speaker 2: What would make you feel comfortable? Is it just the

587
00:29:17,120 --> 00:29:19,680
Speaker 2: easing of capital controls or using.

588
00:29:19,440 --> 00:29:22,880
Speaker 6: The capital control the rules in terms of setting up

589
00:29:22,880 --> 00:29:26,480
Speaker 6: proper trading operation, all of these things. And I always

590
00:29:26,480 --> 00:29:28,520
Speaker 6: say you can break the world differently, so you look

591
00:29:28,520 --> 00:29:32,000
Speaker 6: at our business, Yeah, I can break it and say

592
00:29:32,440 --> 00:29:38,800
Speaker 6: you have high gross region Middle East, Australia, Canada, Asia,

593
00:29:39,360 --> 00:29:42,840
Speaker 6: where they all have the same characteristics. They have high

594
00:29:42,840 --> 00:29:47,600
Speaker 6: growth and high savings rate and doos are you know,

595
00:29:47,720 --> 00:29:50,320
Speaker 6: usually pretty good for us at manager? And then you

596
00:29:50,360 --> 00:29:53,680
Speaker 6: have mature market like US and the UK, where you'd

597
00:29:53,680 --> 00:29:56,400
Speaker 6: be happy to grow at five percent because you know

598
00:29:56,480 --> 00:30:00,000
Speaker 6: there's nothing really new happening and the market is the market.

599
00:30:00,240 --> 00:30:02,160
Speaker 6: You may take market share and you may use market share,

600
00:30:02,240 --> 00:30:05,880
Speaker 6: but the secular growth in the markets is sort of

601
00:30:05,920 --> 00:30:08,920
Speaker 6: well known. And what about in the Gulf, I think

602
00:30:08,920 --> 00:30:11,000
Speaker 6: the golf is very exciting. I mean I always make

603
00:30:11,040 --> 00:30:13,600
Speaker 6: this joke if you close your eyes and you take

604
00:30:13,640 --> 00:30:17,480
Speaker 6: a direct plane from La to Abu Dhabi, So as

605
00:30:17,480 --> 00:30:21,000
Speaker 6: you know in Newport Beach. Yeah, honestly, you think you

606
00:30:21,080 --> 00:30:23,000
Speaker 6: think you went around the world and kind of came back.

607
00:30:23,280 --> 00:30:25,400
Speaker 3: Abu Dhabi is the la of the world.

608
00:30:25,640 --> 00:30:27,880
Speaker 5: Is it's very similar to Newport Beach.

609
00:30:27,920 --> 00:30:31,080
Speaker 6: Actually, people are super friendly, They've done a really really

610
00:30:31,120 --> 00:30:31,560
Speaker 6: good job.

611
00:30:31,760 --> 00:30:36,520
Speaker 3: Super friendly, great weather and the most interesting culture and

612
00:30:36,720 --> 00:30:40,440
Speaker 3: intellectual loves that you can think of. Abu Dhabi a

613
00:30:40,520 --> 00:30:41,080
Speaker 3: Newport Beach.

614
00:30:41,200 --> 00:30:44,600
Speaker 6: I mean, Abu Dhabi is once again over the super

615
00:30:44,640 --> 00:30:47,920
Speaker 6: secular trend. I think the Middle East has come a

616
00:30:47,960 --> 00:30:50,960
Speaker 6: long way. And I think you also had you have

617
00:30:51,000 --> 00:30:55,400
Speaker 6: a new generation of investment professional, locally trained and locally raced,

618
00:30:55,440 --> 00:30:58,640
Speaker 6: which is pretty good. And so once again I think

619
00:30:58,680 --> 00:31:01,160
Speaker 6: that's quite good, you know. And then there's what we

620
00:31:01,240 --> 00:31:04,440
Speaker 6: don't know, you know, everything happening with Iran and whether

621
00:31:04,520 --> 00:31:07,240
Speaker 6: Iran is something would happen or not. And you know,

622
00:31:07,320 --> 00:31:08,960
Speaker 6: I think the understands soor is no one knows.

623
00:31:09,160 --> 00:31:11,880
Speaker 2: I lived in Apudabi for two years and I always

624
00:31:11,960 --> 00:31:14,480
Speaker 2: likened it to Texas in that it's hot all the

625
00:31:14,520 --> 00:31:16,480
Speaker 2: time and you spend a lot of time, a lot

626
00:31:16,480 --> 00:31:18,520
Speaker 2: of your time at the pool and at the shopping mall.

627
00:31:18,640 --> 00:31:19,600
Speaker 4: And that's pretty much it.

628
00:31:20,000 --> 00:31:23,280
Speaker 5: Oh, that could be, that could be Kalifornia exactly exactly.

629
00:31:23,640 --> 00:31:27,760
Speaker 2: Since we're on sort of CEO executive level topics just

630
00:31:27,800 --> 00:31:29,760
Speaker 2: on AI. This is a question we've been asking a

631
00:31:29,800 --> 00:31:32,360
Speaker 2: lot of our guests, but how are you incorporating AI,

632
00:31:32,640 --> 00:31:36,160
Speaker 2: if at all, into your own workflow and organization?

633
00:31:36,640 --> 00:31:40,760
Speaker 6: Oh? I think for us the sort of defensive and

634
00:31:40,800 --> 00:31:46,760
Speaker 6: offensive opportunity. So the defensive one. It should increase significantly

635
00:31:46,760 --> 00:31:50,360
Speaker 6: productivity in terms of everything we do, from the way

636
00:31:50,360 --> 00:31:53,560
Speaker 6: we manipulate document, the whey we create marketing, the way

637
00:31:54,160 --> 00:31:57,280
Speaker 6: we optimize our tread to function. And remember, every time

638
00:31:57,320 --> 00:32:00,480
Speaker 6: we buy a bond, it goes into many different account

639
00:32:00,760 --> 00:32:06,280
Speaker 6: and every single account has different parameters, different restriction.

640
00:32:07,480 --> 00:32:08,400
Speaker 5: It all goes to a.

641
00:32:08,360 --> 00:32:12,200
Speaker 6: Custodian, it gets split, it has best X. All of

642
00:32:12,240 --> 00:32:17,000
Speaker 6: these things is a complicated factory. Anything which makes the

643
00:32:17,080 --> 00:32:22,680
Speaker 6: factory simpler, more efficient and safer is a really really

644
00:32:22,720 --> 00:32:27,480
Speaker 6: good thing. AI will help to do this. We spend

645
00:32:27,640 --> 00:32:32,560
Speaker 6: a lot of time discussing NDA and things like this,

646
00:32:32,720 --> 00:32:36,200
Speaker 6: where honestly it's probably fair to say that we have

647
00:32:36,280 --> 00:32:39,760
Speaker 6: better things to do, and so if AI gets us

648
00:32:39,760 --> 00:32:41,840
Speaker 6: to a more efficient, less costly.

649
00:32:42,000 --> 00:32:43,320
Speaker 5: Solution, that's good.

650
00:32:43,720 --> 00:32:48,640
Speaker 6: I always say, if AI allows us to reallocate resource

651
00:32:48,840 --> 00:32:53,240
Speaker 6: more in R and D than in repetitive menual function

652
00:32:53,400 --> 00:32:57,040
Speaker 6: that we don't need to do, that's good. I think

653
00:32:57,120 --> 00:33:01,800
Speaker 6: compliance will also benefit quite a bit from AI and

654
00:33:01,840 --> 00:33:04,000
Speaker 6: the ability to do deep learning and sort of figure

655
00:33:04,040 --> 00:33:07,040
Speaker 6: out whether the trend, whether we miss something, whether look

656
00:33:07,080 --> 00:33:10,120
Speaker 6: at every possible situation. I think that's also quite good.

657
00:33:10,160 --> 00:33:14,360
Speaker 6: And then there's the offensive part where you sort of said, okay,

658
00:33:15,360 --> 00:33:19,240
Speaker 6: can I use a large language model to try to

659
00:33:19,360 --> 00:33:24,040
Speaker 6: extract from data inside an opportunity that I may have missed.

660
00:33:24,760 --> 00:33:29,120
Speaker 6: And I think on this some of it will say, okay,

661
00:33:29,720 --> 00:33:33,160
Speaker 6: that doesn't work. Yes, you know, we've analyzed every single

662
00:33:33,680 --> 00:33:36,920
Speaker 6: sentence from the FED and every single transcript, and you know,

663
00:33:36,960 --> 00:33:40,760
Speaker 6: we found nothing that we didn't know. And then sometimes

664
00:33:40,840 --> 00:33:44,760
Speaker 6: we may find things that are new and allows us

665
00:33:44,840 --> 00:33:48,440
Speaker 6: to have an additional alpha. And I do think that

666
00:33:48,640 --> 00:33:52,200
Speaker 6: large language model have a competitive edge when you have

667
00:33:52,320 --> 00:33:58,240
Speaker 6: a lot of data which don't necessarily match perfectly. So

668
00:33:58,360 --> 00:34:00,680
Speaker 6: when it's you know, in the mortgage mark you have

669
00:34:01,200 --> 00:34:04,640
Speaker 6: your house, your mortgage, your critics call a picture of

670
00:34:04,640 --> 00:34:09,040
Speaker 6: your house, your insurance, your employment history, your communication with

671
00:34:09,080 --> 00:34:12,800
Speaker 6: your mortgage provider, all of these things I think should

672
00:34:12,800 --> 00:34:17,440
Speaker 6: give us a finer assessment in terms of what's happening.

673
00:34:18,120 --> 00:34:20,920
Speaker 6: And then the more data you have, the mo orphanage

674
00:34:21,480 --> 00:34:25,120
Speaker 6: presumably you get. But I think you embarking through this

675
00:34:25,239 --> 00:34:27,920
Speaker 6: journey being humble and sort of hope that you know

676
00:34:28,000 --> 00:34:29,120
Speaker 6: you have a few win.

677
00:34:29,400 --> 00:34:33,120
Speaker 3: Just on the I suppose defensive because we just recorded

678
00:34:33,160 --> 00:34:35,880
Speaker 3: an episode talking about some of the coding models, and

679
00:34:36,000 --> 00:34:39,160
Speaker 3: there's a huge theme in the stock market. Specifically, lots

680
00:34:39,160 --> 00:34:43,799
Speaker 3: of sort of mid level enterprise software companies get very

681
00:34:43,840 --> 00:34:46,759
Speaker 3: hurt because their clients are like, maybe we could buy

682
00:34:46,800 --> 00:34:49,520
Speaker 3: this or maybe the AI. We don't need to put

683
00:34:49,560 --> 00:34:52,960
Speaker 3: in a sales ticket into a system, because you can

684
00:34:53,040 --> 00:34:55,440
Speaker 3: have an AI that just knows that tell the salesperson

685
00:34:55,480 --> 00:34:58,600
Speaker 3: to make a call, et cetera. On this sort of

686
00:34:58,640 --> 00:35:01,560
Speaker 3: basic blocking and tackle. At an asset manager, you must

687
00:35:01,600 --> 00:35:07,080
Speaker 3: have tons of third party enterprise software contracts and seat negotiations,

688
00:35:07,080 --> 00:35:10,960
Speaker 3: et cetera. At that level, do you see AI tilting

689
00:35:11,040 --> 00:35:12,920
Speaker 3: the playing field and such? You know what, maybe we

690
00:35:12,960 --> 00:35:15,160
Speaker 3: could build this future trivially and we don't need to

691
00:35:15,160 --> 00:35:18,239
Speaker 3: pay this per seat license or anything like that. Are

692
00:35:18,280 --> 00:35:19,440
Speaker 3: you seeing this in action?

693
00:35:19,680 --> 00:35:20,719
Speaker 5: I think you're totally right.

694
00:35:20,880 --> 00:35:23,080
Speaker 6: I think that all of us have apps that we

695
00:35:23,239 --> 00:35:25,239
Speaker 6: use in software that we use that we don't love

696
00:35:25,520 --> 00:35:28,759
Speaker 6: and that cost too much money, and we'll try to

697
00:35:28,800 --> 00:35:30,759
Speaker 6: replace them, and some of them you'll be able to

698
00:35:30,800 --> 00:35:32,239
Speaker 6: replace quickly, and some of them you want.

699
00:35:32,800 --> 00:35:34,400
Speaker 5: But that's an effort.

700
00:35:34,400 --> 00:35:36,480
Speaker 2: There's like, that's a real in house development.

701
00:35:36,520 --> 00:35:39,440
Speaker 4: Is that something you're doing already? Interesting?

702
00:35:39,560 --> 00:35:42,720
Speaker 6: And I think to link that back to the market. Sure,

703
00:35:43,440 --> 00:35:47,880
Speaker 6: there's been quite a high level of activity in private

704
00:35:47,880 --> 00:35:52,440
Speaker 6: equity in software because the cash flow was deemed to

705
00:35:52,440 --> 00:35:56,000
Speaker 6: be predictable with high leverage.

706
00:35:56,760 --> 00:35:57,399
Speaker 5: It would be.

707
00:35:57,320 --> 00:36:00,440
Speaker 6: Interesting to see what happened to the in terms of

708
00:36:00,440 --> 00:36:04,400
Speaker 6: this software company for the years to come. There'll be

709
00:36:04,480 --> 00:36:08,560
Speaker 6: winners and loser, but the top line of some of

710
00:36:08,560 --> 00:36:10,719
Speaker 6: this software company would be interesting. And I know that

711
00:36:10,840 --> 00:36:14,200
Speaker 6: Dan is worry about the software industry in terms of risk,

712
00:36:14,680 --> 00:36:18,879
Speaker 6: and every single credit we own, we look at it

713
00:36:18,960 --> 00:36:22,799
Speaker 6: with an air length and say, if AI is as

714
00:36:23,239 --> 00:36:26,080
Speaker 6: game changing as we think it is, what would it

715
00:36:26,160 --> 00:36:28,840
Speaker 6: do to this business model? And I think that's a

716
00:36:28,880 --> 00:36:32,600
Speaker 6: perfectly reasonable question in terms of what it may do.

717
00:36:32,960 --> 00:36:35,960
Speaker 2: You mentioned the FED a little earlier, and I realized

718
00:36:36,000 --> 00:36:39,200
Speaker 2: we've gone this entire conversation without actually talking that much

719
00:36:39,239 --> 00:36:41,839
Speaker 2: about the US Central Bank. But let's rectify that now.

720
00:36:42,080 --> 00:36:44,280
Speaker 2: So one of the remarkable things about the bond market

721
00:36:44,320 --> 00:36:48,040
Speaker 2: recently is, even though there have been concerns and headlines

722
00:36:48,200 --> 00:36:52,680
Speaker 2: around central bank credibility and possibly how you coming under

723
00:36:52,760 --> 00:36:56,240
Speaker 2: criminal indictment and all of that, the bond market hasn't

724
00:36:56,239 --> 00:36:59,319
Speaker 2: really reacted that much. Again, it's been trading in a

725
00:36:59,360 --> 00:37:02,080
Speaker 2: very narrow way change. We've also seen tips and other

726
00:37:02,320 --> 00:37:06,759
Speaker 2: inflation related bonds basically not incorporating any of what you

727
00:37:06,800 --> 00:37:07,680
Speaker 2: would think would.

728
00:37:07,520 --> 00:37:09,120
Speaker 4: Be these political risks.

729
00:37:09,760 --> 00:37:12,680
Speaker 2: Do you worry at all about credibility of the central

730
00:37:12,680 --> 00:37:14,000
Speaker 2: bank as a big bond buyer.

731
00:37:14,320 --> 00:37:19,279
Speaker 6: I think we believe in FED independence, and as we

732
00:37:19,360 --> 00:37:23,000
Speaker 6: often say, I haven't met many politicians who wants higher rate.

733
00:37:23,480 --> 00:37:27,640
Speaker 6: And so there's two level in economic policy. There's monetary

734
00:37:27,640 --> 00:37:30,000
Speaker 6: and fiscal. You want the FED to be in charge

735
00:37:30,040 --> 00:37:34,440
Speaker 6: of monetary policy, and I think the good news is

736
00:37:35,280 --> 00:37:40,400
Speaker 6: whoever gets the job as head of the FED enters

737
00:37:40,440 --> 00:37:44,080
Speaker 6: into the history book. I think the weight of the

738
00:37:44,160 --> 00:37:49,360
Speaker 6: function is such that people tend to make very rational decisions.

739
00:37:49,360 --> 00:37:52,680
Speaker 6: It doesn't mean that they're always the correct one, but

740
00:37:53,760 --> 00:37:57,600
Speaker 6: you're not going to see a situation where with the

741
00:37:57,640 --> 00:38:03,520
Speaker 6: reading of inflation they may totally suboptimal decision for political reason.

742
00:38:03,560 --> 00:38:05,879
Speaker 6: I think it's very We're far from that. I think

743
00:38:05,880 --> 00:38:08,279
Speaker 6: it's very hard to do okay, and you have a

744
00:38:08,360 --> 00:38:11,520
Speaker 6: voting process. I think what you achieve economist tells you

745
00:38:11,520 --> 00:38:14,480
Speaker 6: you're crazy. It's just really difficult to kind of go

746
00:38:14,560 --> 00:38:17,399
Speaker 6: against this. Now, you know, maybe once you can kind

747
00:38:17,400 --> 00:38:19,399
Speaker 6: of look through the data and say, I do think

748
00:38:19,440 --> 00:38:20,680
Speaker 6: the data are going to become.

749
00:38:20,480 --> 00:38:24,200
Speaker 5: Better, is why. But it's a really really dangerous game.

750
00:38:24,840 --> 00:38:29,239
Speaker 6: Also, once you lose credibility, you really lose credibility.

751
00:38:29,719 --> 00:38:33,200
Speaker 5: And I often say I think everyone.

752
00:38:32,800 --> 00:38:37,200
Speaker 6: Has looked at the least us situation in the UK,

753
00:38:37,920 --> 00:38:42,880
Speaker 6: when you do something borderline crazy in literally five days,

754
00:38:42,960 --> 00:38:45,920
Speaker 6: you can destroy your credibility on the bond market and

755
00:38:45,960 --> 00:38:48,200
Speaker 6: you have to move at the speed of light and

756
00:38:48,320 --> 00:38:50,560
Speaker 6: with the Bank of England to be able to correct

757
00:38:51,360 --> 00:38:53,719
Speaker 6: when rates go up literally one hundred pips. And so

758
00:38:53,800 --> 00:38:57,160
Speaker 6: I do think the market punishes you and punishes you

759
00:38:57,320 --> 00:39:00,160
Speaker 6: really hard if you try to do something which she

760
00:39:00,200 --> 00:39:00,680
Speaker 6: doesn't want.

761
00:39:01,239 --> 00:39:04,160
Speaker 3: Why is it that Liz trust is like, okay, this

762
00:39:04,320 --> 00:39:06,680
Speaker 3: was like a dangerous thing. It was like reckless et cetera.

763
00:39:07,360 --> 00:39:12,440
Speaker 3: Whereas new Prime Minister of Japan comes in talks about

764
00:39:12,440 --> 00:39:16,280
Speaker 3: reflationary policies and you describe as like everyone's excited about

765
00:39:16,360 --> 00:39:19,880
Speaker 3: Japan right now. What is the difference between the inflationary

766
00:39:19,920 --> 00:39:23,040
Speaker 3: impulse that Liz trust was expected to have accelerated with

767
00:39:23,080 --> 00:39:27,480
Speaker 3: the mini budget versus maybe the more benign reflation that

768
00:39:27,600 --> 00:39:30,600
Speaker 3: you're mostly describing as a sort of positive development in Japan.

769
00:39:30,719 --> 00:39:33,120
Speaker 6: Well, I think what happened is she gave this whole

770
00:39:33,160 --> 00:39:36,520
Speaker 6: text package at the same time, so there was like

771
00:39:36,560 --> 00:39:38,839
Speaker 6: this liberalization and the same time a tax package where

772
00:39:38,880 --> 00:39:42,360
Speaker 6: clearly someone hadn't kind of figure out the very basic

773
00:39:42,480 --> 00:39:45,840
Speaker 6: math in terms of what it did to government spending.

774
00:39:46,239 --> 00:39:47,799
Speaker 6: And then all of a sudden you had a huge

775
00:39:47,800 --> 00:39:49,759
Speaker 6: deficit that the markets sow and say, oh my god,

776
00:39:50,000 --> 00:39:52,319
Speaker 6: there's no way you can do this, this is not realistic.

777
00:39:52,800 --> 00:39:54,400
Speaker 6: And the back end of the clupt just went crazy.

778
00:39:54,440 --> 00:39:57,080
Speaker 6: I mean, at some point in time, disco policy really

779
00:39:57,120 --> 00:40:00,120
Speaker 6: really matters. And you know, look, I you know one

780
00:40:00,200 --> 00:40:02,360
Speaker 6: other thing about being European is you look at physical

781
00:40:02,360 --> 00:40:04,719
Speaker 6: policy quite a bit, because that's that's been one of

782
00:40:04,760 --> 00:40:10,000
Speaker 6: the core level of economic policy. And somehow I think

783
00:40:10,040 --> 00:40:11,640
Speaker 6: the left hand and the right hand forgot to talk

784
00:40:11,680 --> 00:40:13,480
Speaker 6: to each other, and they came up with a package

785
00:40:13,520 --> 00:40:17,160
Speaker 6: which made no sense and clearly hadn't been blessed by

786
00:40:17,160 --> 00:40:20,560
Speaker 6: the UK Treasury, and the market reacted incredibly strongly to that.

787
00:40:21,560 --> 00:40:23,400
Speaker 2: You know, I think when it comes to PIMCO, I

788
00:40:23,440 --> 00:40:26,440
Speaker 2: think it's often underappreciated how much of PIMCO is about

789
00:40:26,440 --> 00:40:30,719
Speaker 2: those sort of overlays on top of the fixed income positions.

790
00:40:31,400 --> 00:40:34,360
Speaker 2: And so I have to channel my inner Bill Gross

791
00:40:34,400 --> 00:40:39,200
Speaker 2: here and ask are you selling volatility into this particular environment?

792
00:40:39,680 --> 00:40:41,680
Speaker 6: Well, I think we look at volatility all the time,

793
00:40:41,840 --> 00:40:44,719
Speaker 6: and I think when we find opportunity to sell valatility,

794
00:40:44,760 --> 00:40:44,960
Speaker 6: we do.

795
00:40:45,239 --> 00:40:46,320
Speaker 5: And it's source of.

796
00:40:46,600 --> 00:40:48,879
Speaker 6: A fun I think we've done it for a very

797
00:40:48,880 --> 00:40:51,799
Speaker 6: long time, and you know sometimes we sometimes we think

798
00:40:51,800 --> 00:40:54,239
Speaker 6: it's attractive and sometimes we think it's less attractive, and

799
00:40:54,320 --> 00:40:56,640
Speaker 6: we you know, I'm not going to talk about a position,

800
00:40:56,760 --> 00:40:59,720
Speaker 6: but it is. It is a source of risk premia,

801
00:40:59,840 --> 00:41:01,520
Speaker 6: and I think we focus on it. I think we

802
00:41:02,000 --> 00:41:06,319
Speaker 6: to kind of come back to this. We hit single right,

803
00:41:06,480 --> 00:41:11,400
Speaker 6: and I think what makes our performance is really the

804
00:41:11,480 --> 00:41:15,480
Speaker 6: work of three hundred people on the dynavisin But we

805
00:41:15,560 --> 00:41:18,239
Speaker 6: hit a lot of single well, and when you put

806
00:41:18,280 --> 00:41:21,239
Speaker 6: all this single together the result is pretty good.

807
00:41:22,160 --> 00:41:23,160
Speaker 5: The great men.

808
00:41:23,080 --> 00:41:25,840
Speaker 6: Coming down from the mountain and thinking that all this

809
00:41:26,000 --> 00:41:28,520
Speaker 6: great macro trend are going to happen.

810
00:41:28,840 --> 00:41:29,840
Speaker 5: That doesn't quite work.

811
00:41:30,320 --> 00:41:35,000
Speaker 6: It's really about being incredibly disciplined and essentially making a

812
00:41:35,000 --> 00:41:38,080
Speaker 6: bit of money every single day with various different level

813
00:41:38,320 --> 00:41:41,799
Speaker 6: And maybe I demystify what we do, but I think

814
00:41:41,840 --> 00:41:43,560
Speaker 6: it's actually a lot of work and that is why

815
00:41:43,600 --> 00:41:44,120
Speaker 6: it works.

816
00:41:44,600 --> 00:41:46,000
Speaker 5: And it's repeatable. You know.

817
00:41:46,080 --> 00:41:48,680
Speaker 6: I always say to a fund manager, why do you

818
00:41:48,719 --> 00:41:51,839
Speaker 6: think you can make money? Question number one? Question number two?

819
00:41:52,239 --> 00:41:54,440
Speaker 6: Why is it repeatable? Why do you think you can

820
00:41:54,480 --> 00:41:57,240
Speaker 6: do it again? And the great idea and the great

821
00:41:57,239 --> 00:42:01,000
Speaker 6: men coming from the mountain, I who's the table of

822
00:42:01,040 --> 00:42:05,000
Speaker 6: the lows. I'm not entirely sure it's that repeatable, because

823
00:42:05,000 --> 00:42:07,520
Speaker 6: sometimes you get lost in the burning bush and you know,

824
00:42:07,600 --> 00:42:10,120
Speaker 6: other things and so on, and he is a very

825
00:42:10,160 --> 00:42:14,239
Speaker 6: evocative images. Yeah, you know, I'm an evocative guy, and

826
00:42:14,920 --> 00:42:17,319
Speaker 6: I do think REPEATABIDT is really really important. You want

827
00:42:17,320 --> 00:42:19,440
Speaker 6: to make your process as industrial as possible and sort

828
00:42:19,480 --> 00:42:22,440
Speaker 6: of said, okay, who's our older level I have? And

829
00:42:22,480 --> 00:42:24,640
Speaker 6: on average this is gonna be pretty good.

830
00:42:24,960 --> 00:42:27,879
Speaker 4: All right, Manny Roman, thank you so much than coming on.

831
00:42:28,000 --> 00:42:28,800
Speaker 5: It's a real pleasure.

832
00:42:29,120 --> 00:42:43,479
Speaker 3: It's fantastic. Thank you so much, Joe.

833
00:42:43,480 --> 00:42:46,960
Speaker 2: That was a really enjoyable conversation. And I like straddling

834
00:42:47,000 --> 00:42:49,920
Speaker 2: the CEO and CEO world, so it was interesting to

835
00:42:49,920 --> 00:42:52,600
Speaker 2: get that perspective. You know, one thing I saw right

836
00:42:52,680 --> 00:42:56,880
Speaker 2: before we recorded this episode, people were talking about the

837
00:42:56,920 --> 00:42:59,400
Speaker 2: Bank of America Global Fund Manager survey.

838
00:42:59,480 --> 00:43:00,680
Speaker 3: Oh out today.

839
00:43:00,960 --> 00:43:02,160
Speaker 4: I don't think it's out, but in.

840
00:43:02,120 --> 00:43:07,399
Speaker 2: The last one, relatively recently, I think geopolitical conflict top

841
00:43:07,440 --> 00:43:10,160
Speaker 2: the list, which you know, kind of expected. But then

842
00:43:10,200 --> 00:43:14,839
Speaker 2: the second concern, the second biggest concern was a disorderly

843
00:43:15,040 --> 00:43:19,080
Speaker 2: rise in bond yields. Interesting, so like nineteen percent of

844
00:43:19,160 --> 00:43:22,840
Speaker 2: respondents had that down as their like top tail risk

845
00:43:23,000 --> 00:43:26,120
Speaker 2: in January. That's pretty interesting to me. And that's the

846
00:43:26,160 --> 00:43:29,160
Speaker 2: atmosphere feels a little bit different because people are so

847
00:43:29,320 --> 00:43:32,760
Speaker 2: primed for this particular event totally.

848
00:43:32,800 --> 00:43:33,000
Speaker 6: You know.

849
00:43:33,120 --> 00:43:35,799
Speaker 3: The thing that I keep thinking about is we just

850
00:43:35,880 --> 00:43:38,960
Speaker 3: have this combination right now of like all right, so

851
00:43:39,080 --> 00:43:41,520
Speaker 3: like we didn't ask many this directly, but it's like

852
00:43:41,520 --> 00:43:44,279
Speaker 3: this fundamental question, why does the neutral rate appear to

853
00:43:44,280 --> 00:43:46,680
Speaker 3: be higher than it used to be? Right, And there's

854
00:43:46,760 --> 00:43:50,319
Speaker 3: two big things going on, which is, there's a lot

855
00:43:50,360 --> 00:43:55,520
Speaker 3: of public spending because of remilitarization, and that's related to geopolitics,

856
00:43:55,800 --> 00:43:58,960
Speaker 3: this desire for national self sufficiency across the range of

857
00:43:59,000 --> 00:44:01,720
Speaker 3: technological and commodities and so forth. So there's like tons

858
00:44:01,760 --> 00:44:05,360
Speaker 3: of spending and we're throwing stand to the gears of trade,

859
00:44:05,400 --> 00:44:08,080
Speaker 3: so that spending is less efficient than it otherwise would

860
00:44:08,160 --> 00:44:11,040
Speaker 3: have been. Right, So for a dollar of spending, maybe

861
00:44:11,040 --> 00:44:13,720
Speaker 3: only seventy five percent is actually contribute to the economy

862
00:44:13,719 --> 00:44:16,399
Speaker 3: and twenty five percent is waist, et cetera. So these

863
00:44:16,440 --> 00:44:18,440
Speaker 3: are two things going on at once, and so like,

864
00:44:18,520 --> 00:44:21,080
Speaker 3: I certainly take Manny's point, and I think it's totally right.

865
00:44:21,480 --> 00:44:24,080
Speaker 3: They say, you can't one day you get a blip

866
00:44:24,400 --> 00:44:26,000
Speaker 3: and it's like it's not the end of the world,

867
00:44:26,040 --> 00:44:28,320
Speaker 3: and you have to train yourself to like not overthink

868
00:44:28,360 --> 00:44:31,200
Speaker 3: a single day. On the other hand, rates around the

869
00:44:31,239 --> 00:44:35,600
Speaker 3: world remain despite rate cuts, et cetera, and despite arguably

870
00:44:35,719 --> 00:44:37,520
Speaker 3: slow down significantly above where they were.

871
00:44:37,600 --> 00:44:40,880
Speaker 8: Right, there's a direction of travels, a broader direction of

872
00:44:40,960 --> 00:44:46,920
Speaker 8: travel that strikes me is very intuitive given this simultaneous

873
00:44:46,920 --> 00:44:51,120
Speaker 8: phenomena of like less efficient trading systems and more spending.

874
00:44:51,600 --> 00:44:55,799
Speaker 2: All right, I see Trump is giving his address at Davos,

875
00:44:55,840 --> 00:44:57,080
Speaker 2: So shall we leave it there?

876
00:44:57,960 --> 00:45:01,919
Speaker 3: Another man from the man. I love Manny's like man

877
00:45:01,920 --> 00:45:03,560
Speaker 3: of the mountain, I feel and finance. We'll always talk

878
00:45:03,560 --> 00:45:05,919
Speaker 3: about men of the mountain coming down with their wisdom. Yeah,

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00:45:06,040 --> 00:45:07,719
Speaker 3: I love that. But yes we should go listen to

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00:45:07,840 --> 00:45:09,160
Speaker 3: a man literally in the.

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Speaker 4: Mountain rots mountain men in David.

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00:45:11,400 --> 00:45:13,480
Speaker 3: Here already has to say, all right, anyway, we could

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Speaker 3: leave it there.

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Speaker 2: This has been another episode of the oud Loots podcast.

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00:45:16,400 --> 00:45:19,560
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

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00:45:19,320 --> 00:45:22,200
Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart.

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00:45:22,440 --> 00:45:25,600
Speaker 3: Follow our producers Kerman Rodriguez at Kerman armand dash O

888
00:45:25,640 --> 00:45:29,000
Speaker 3: Bennett at Dashbot and Kilbrooks at Kilbrooks. For more odd

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00:45:29,080 --> 00:45:31,759
Speaker 3: Laws content, go to Bloomberg dot com slash odd Lots.

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00:45:31,800 --> 00:45:34,160
Speaker 3: We're of a daily newsletter and all of our episodes

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Speaker 3: and you can chat about all of these topics twenty

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Speaker 3: four seven in our discord discord do Gg slash.

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00:45:39,719 --> 00:45:42,759
Speaker 2: Odd Lots and if you enjoy odd Lots, if you

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00:45:42,920 --> 00:45:45,200
Speaker 2: like it, when we talk to the CEO of the

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00:45:45,239 --> 00:45:47,920
Speaker 2: world's biggest bond fund. Then please leave us a positive

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00:45:47,920 --> 00:45:51,160
Speaker 2: review on your favorite podcast platform. And remember, if you

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00:45:51,200 --> 00:45:53,719
Speaker 2: are a Bloomberg subscriber, you can listen to all of

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Speaker 2: is find the Bloomberg channel on Apple Podcasts and follow

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00:45:59,760 --> 00:46:00,719
Speaker 2: the instructions there.

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00:46:01,040 --> 00:46:01,880
Speaker 4: Thanks for listening.