Pimco's Dan Ivascyn on the State of Markets Right Now

Tracy Alloway (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:15)

And I'm Joe Weisenthal.

Tracy Alloway (0:17)

Joe, I feel like it's pretty hard to be an investment manager at the moment. Like, I feel like it's hard at the best of times, but at the moment, you have this intense volatility. So stuff that is normally volatile, like stocks and commodities, is even more volatile.

And then you have stuff that isn't really supposed to be volatile, but definitely is in the new environment. And I'm thinking mostly about bonds.

Joe Weisenthal (0:42)

Well, and also, the underlying macro situation is just extremely complicated and contested. I mean, like, there's a debate about whether the last two quarters are characterized as a recession.

And there's kind of legit questions about that in mind. You know, setting aside NBR versus two quarters, like how should you call this environment in which consumer sentiment is really low, growth is down, employment is booming, inflation is still hot, consumption is still high. Like these are just like really difficult environments to understand in part because it is kind of unprecedented.

Tracy Alloway (1:19)

Yeah. And it seems like everyone kind of feels bad in all the survey based economic measures suggest that sentiment is deteriorating. But at the same time, the hard numbers are really resilient. So actual spending and investment just keep going.

And yeah, you're right. It's a really weird environment, particularly if you're trying to put money to work.

Joe Weisenthal (1:42)

And then I would say over the last two years, like everyone kind of got it wrong at every turn, right? Like everyone said, okay, COVID hit in early 2020 Here comes a big downturn and a recession. And it's like, actually we had the shortest recession in history and then stocks were at all time highs a few months later.

Then, you know, fast forward a little bit to 2021

People were super positive. Yeah, inflation was ticking up, but A is likely transitory. It's like reopening and almost everyone got that wrong, particularly a lot of investors judging by the reprice, how fast the repricing happened. The Fed had to pivot pretty quickly when it realized inflation would persist for longer than expected. Pivot really started in November. So it's like, at no point has it felt like the consensus has been like, had a good feel on this cycle.

Tracy Alloway (2:31)

At no point has it felt like anyone really knows what's going on.

Joe Weisenthal (2:34)

Correct.

Tracy Alloway (2:34)

Is that what you're saying?

Joe Weisenthal (2:35)

Yeah.

Tracy Alloway (2:36)

On that note, we are going to be speaking with someone about all of these very, very big topics. Really the perfect guest. We're going to be speaking with Dan Ivascyn. He is of course the Group Chief Investment Officer and Managing Director over at Pimco's Newport Beach.

For those that don't know Pimco, I mean, you must know Pimco, but Pimco has something like $2 trillion worth of assets under management. So making these tough decisions about the macro outlook and where to actually invest every day.

So Dan, thank you so much for coming on Odd Lots.

Daniel J. Ivascyn (3:07)

Well, thank you, Tracy and Joe. I'm very excited to be here today.

Tracy Alloway (3:11)

So you sit on Pimco's Investment Committee. I'm really curious what's top of mind for the people who have to do something with $2 trillion worth of assets every day. What are you guys talking about?

And what's on the top of the agenda for you at the moment?

Daniel J. Ivascyn (3:28)

Sure. Well, inflation is certainly a topic. As you mentioned, this has been an incredibly challenging time from an economic forecasting perspective. First, a global pandemic, then an unprecedented amount of fiscal stimulus, and now an inflation problem that at least is partially related to those two prior points. So increasingly, we're spending a lot of time talking about this inflation dynamic, of course, how policymakers are going to look to get inflation back towards their targets. And now, increasingly, markets are seeing what has historically been a fairly obvious trade-off, and that's growth, employment, and this inflation problem, and how will that be balanced over time.

In addition to that, of course, we're not operating in a normal environment. We have war in Europe, lots of uncertainty and ongoing global tension between the United States, other Western countries, and China. So there's just a lot of uncertainty, a lot of risk, and we're trying to gain sufficiently broad perspectives to see where we may have an edge, and I think it's important in an environment as highly uncertain as this one to realize when at a particular point in time you don't have an edge and where you're entering markets that represent a lot of risk, a lot of volatility, and I think there's a risk management piece here as well.