The Compound and Friends - How Pimco is Preparing for the Next Capital Loss Cycle with Dan Ivascyn

Episode Date: June 15, 2026

On this special episode of The Compound and Friends, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Downtown Josh Brown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ sit down with Dan Ivascyn, Group Chief Investment Officer at PIMCO, for a wide-ranging conversation on markets, bonds, AI, and the forces reshaping the global economy. They discuss PIMCO’s latest secular outlook, “Rupture and Resilience,” and explains why geopolitical uncertainty, tariffs, deglobalization, AI infrastructure spending, and rising debt levels are creating both risks and opportunities for investors. This episode is sponsored by VanEck. Learn more about RAAX at https://www.vaneck.com/RAAXCompound/overview/ Sign up for The Compound Newsletter and never miss out: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠thecompoundnews.com/subscribe⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Instagram: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠instagram.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Twitter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠twitter.com/thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ LinkedIn: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠linkedin.com/company/the-compound-media/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TikTok: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠tiktok.com/@thecompoundnews⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Van Eck Disclosure: Investing involves substantial risk and high volatility, including possible loss of principal. Call 1-800-826-2333 or visit http://vaneck.com/ to read and consider the prospectus, containing the investment objective, risks, and fees of the fund, carefully before investing.  Learn more about your ad choices. Visit megaphone.fm/adchoices

One of the things that I haven't really discussed, because I think it's obvious to me, but maybe not everybody, is we've been so bad for so long. Like, it's been so long. And so many horrendous errors from, I mean, I was Safele Jackson, but way before that. Isaiah and Dan Tony and Herb Williams and Mike Woodson and just so much garbage.

Are you a big basketball fan or not, really? I am. No, I am. Do you remember this guy, Anthony Randolph? He was like a skinny 6-11 kid that never came to fruition. We got him when he was like 25 from Golden State. And he was going to be the next guy. And like there's just so much, so many years of just misery.

Barney, just all these washed up guys. I don't know if you can tell Michael's a really big Nick's fan. I know. And I'm a big Celtic fan. So I've had season tickets to the Celtics since, I'll say, 2013. Okay. We're pretty bad back then, if you remember. But same deal.

Stocks and draft picks. Who was the squad when you got in there? Oh, God, we were, I didn't remember who. 2013 Celtics. It was almost, it was. I was obviously after a walkroom. Well, Pierce were still there. Yeah, it was almost nobody.

Oh, was that post-Pierce? What did they transition? No. So he was already gone. He would have, he would have like two years left. We had cleaned house pretty much. It was just a lot of young journey. So Pre-Tatim and Brown.

I don't remember who was there. The Utah kid that we got. Oh, Gordon. We had the Kyrie rolled through, Hayward rolled through. Yeah, yeah. Injured. That was real early. That's the only time I've ever seen a sports injury that I cried at.

That wasn't like one of my guys. Because I was opening night of Gordon Hayward and Kyrie and was just so devastating. What, he broke his leg on the court? His ankle just went like this. That was ugly. Really hard to watch. But I was looking forward to Nick Celtics. I thought we were going to have that series.

I can't believe you guys. You lost game seven. At home, right? As a Celtics fan, though, you don't begrudge the Knicks. It's not the same as Yankees, Red Sox. You can speak freely. You know, it's, it hurts. It hurts.

It hurts. It hurts. Which part? Agnes is laughing. No, no, no, right for the beginning. I tend to, I tend to. You're a hater? Well, the way I look at it.

Get out. Yeah, yeah. If it's not Boston, it's usually the cities that are tougher to live in. Bad way. You know, weaker economies. That's sort of how I sequentially, you know, root for teams. You like underdog. You like underdog cities.

Exactly. You root for Detroit. Detroit. Cleveland. Yeah. Okay. Buffalo with one caveat. We mangled Cleveland.

What's the caveat with us? Well, in football, one of, uh, one of the fixed income rivals of ours really likes the bill. Oh, Jeffrey. Yeah. Yeah. Yeah. Understood.

But now, uh, we have, we actually have a few guys on the team that, uh, PM team that are from Buffalo. So Buffalo's another one that, I've been ruining for them hard in the last five years. Yeah. Brutal. I don't think you have to worry about the man ever winning. How are we doing? All right.

Light Dan beautifully. This is a very important man. I was telling Dan, he doesn't know this, but we've been trying to get him for years. Yeah, we really have. There's a fortress around you. Yeah. They don't let you do a lot of stuff. No, I tend to stay on the floor, trade floor.

But you don't do a lot of media at all. So we like that about you. Actually, we admire that about you. And we're going to talk about that a little bit later on. but, like, not focused as much being the face of the firm, but more focused on the returns of the firm, I think is, like, extremely admirable. Yeah, thank you.

Yeah, appreciate that. And we have a lot, yeah, again, we have a big team. So we have a lot of folks, as you know, you speak to us a lot. I know. That are good at the messaging. So we became Pimpco clients by accident. You guys acquired a little municipal bond shop in La Jolla. What was it?

Gerton. Oh, Gerton, is the original name. And no issues with the transition. That was a while ago. It was probably 2016. But the PIMCO guys called us immediately and said, you haven't done business with us yet, but we're going to continue, you know,

what we've been doing for you. And it worked. Yeah, no, we appreciate that. We leave them to themselves. They do a great job. Dave Hammer oversees the team. So, you know, we've integrated in areas where it's helpful, on the credit side in particular.

but they got a nice, nice office down further south. Newport's a great place, too, which is different. Yeah. So why, where were they? They're down, right where they were before. I think they shifted office location, but they were right down near La Jolla. How long have you been in Newport for?

Well, PIPCO's been there from since the very beginning. What about you? Late 70s, early 80s. I got there in 98. Oh, wow. So I pretend to dislike it. I pretend to, you're a good Boston fan. You can't like it too much.

But the weather is phenomenal. I have two young girls. And it's just nice. We have somebody in Manhattan Beach, so we're trying to get there once a year, if I can. But it's the best part of the country. Manhattan Beach is great. The issue is just traffic.

So with no traffic, Newport to Manhattan Beach is 30, 35 minutes. With traffic, it could be, you know, you could have a two-hour. So, you know, we do this future-proof festival in your backyard in Huntington Beach. And last year, we had 5,000 people. mostly wealth management, you know, professionals. Well, I'd like to do that one. I think we had, I thought we tried maybe this past year. And I had a conflict or something came up, but that's, that's a great event.

Yeah, no, I don't, I never know if it was me or if, or if we get double booked. But, uh, we'll figure, we'll figure it out. We would absolutely love to have you there. And it's, uh, and it's nearby. It's the compound and bring special with Dan Iverson. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor.

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That's vanac.com slash R-A-A-X compound. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ridholt's wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ridholds wealth management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to the greatest investing podcast in the world. My name is downtown Josh Brown.

My guest today is bewildered at what's going on in his headphones. I promise the show gets more serious in two seconds, all right? I promise. All right. You guys, we have a special edition of the show today. I'm super excited to welcome a first-time guest, somebody that we have wanted to have on the show for a very long time. He doesn't like us very much, so it took a while.

But he's here. Dan Iverson is the group chief investment officer and a managing director in the new Port Beach office at Pimco. Dan is lead portfolio manager for the firm's income, credit hedge fund, and mortgage opportunistic strategies, and is also a portfolio manager for total return strategies. He's a member of Pimco's executive committee and a member of the investment committee. Morningstar named Dan Fixed Income Fund Manager of the year for 2013. And he was inducted into the Fixed Income Analyst Society, Hall of Fame in 2020.

2019. That's quite a buildup. Thank you. I appreciate. Great to meet here, guys. Congratulations on all that. Thank you. Congratulations for the mix as well. Thank you. So we're going to talk current events, but I got to go back first. The first time I had ever heard of you was during your succession. And the Wall Street Journal wrote a really nice piece about you in 2017. And I think you sort of came in at the end of a tumultuous time, which we don't have to get into. But you seemed like kind of a big pivot for the firm where it was going to be much more focused on the products and the portfolios and a little bit

less about FaceTime for Dan and creating a new Bond King. Would you say that's sort of accurate? Yeah, I think the second part for sure. And it's really, you know, the fact that we have a team, a lot of other, a lot of folks like to get out there and share what we're thinking we're doing, slightly different set of preferences. What's, you know, what the wasn't required at the time was a major change. in investment philosophy. Yeah.

Bill Muhammad, but certainly Bill Gross had a big personality. He liked to share views. He would do it in a very direct way. Behind the scenes, for him, it was all about building teams, process, lots of small trades. So from that perspective, things haven't changed nearly as much as people may have thought. I think the tumult was more of a media story than it was like an investing story. But, you know, we provided a lot of ammo there for, you know, for the media. Yeah, if you're looking back,

that we would have tried to do things a little bit differently, a little smoother. But other than the pressure to perform, anytime you have a change, you know, with someone, you know, with Bill's caliber exiting the firm, a lot of pressure on us. But from a process perspective, not a lot has changed other than the fact that markets have become more global.

The tech stuff matters. The numbers matter a little bit more. There are more numbers out there to crunch. So, you know, things have become a bit more technical, maybe more precise, at least, you know, in terms of the way you make decisions. But philosophically, the emphasis on the team, the stuff that we, structures we use to make decisions haven't changed as much as people would maybe have expected. And again, it's a tribute to Bill and folks that are around a lot longer than I was.

No question. Shout to Bill, of course, Mohammed. In the journal article that chronicled your first year or so at the helm, you were able to stop outflows. and it mentions the team as well. Somebody called you the perfect CIO for the PIMCO we think of in the future, which was present about nine years ago, and you've certainly accomplished a lot.

And then I thought this was interesting. In another departure from the previous era, Mr. Iverson relies more heavily on the expertise of individual portfolio managers to find profitable trades. So it became less about making the big, firm-wide call, and then delegating other people,

and it seems like it was much more of a group effort. You say that's accurate? I think that's right. And I think you also have to take what the market gives you. So, you know, years leading up to the financial crisis, there was a big trade to do. Coming out of the financial crisis, there was a big trade to do. Lots of cheap paper.

You could make a bold call, go out there and find anything housing-related you could buy and produce great outcomes. You know, as you progressed further away from the global financial crisis, Yields were low, volatility was low, lots of support from monetary policy agents, the fiscal side. So in some sense, he almost needed a lot of small things to go well. And then, you know, at times there is a big trade. So we're, you know, we want to be on the lookout for the big trade.

They're just harder to find. They don't come every, they don't come every court. Right. I would say post the great financial crisis, you had the COVID moment. It was probably an opportunity for big trades. But not a ton of, like, fat pitches coming in. from a macro perspective. Correct.

And not only were bonds not cheap, but there were voices calling them a bubble. I think Bill Gross was calling them a bubble for a while. There was very little opportunity. Bonds were you had to have them because you can't be all in inequities, but it was like a huge, it was annoying. Well, yes, it was annoying and tough to operate. If you're in Europe, again, you're in negative yields.

So, you know, again, we try to, you know, we market in this industry and you try to put on a positive, home, inflation was low. Yeah. But yeah, no value. You know, so you took a low inflation rate, subtracted that small rate from starting bond yields. You ended up with a negative number.

And we've had 10 or 15 years. I don't know. I don't have the math or the numbers of front of me, but the last 10 or 15 years, high quality bonds have generated returns of about 2.5%. Yeah. Take away, you know, two-ish percent inflation. Nothing there. The math is much more favorable today.

And, you know, unlike growth equity, investing, VC, you know, with a little bit of time, you typically earn your yield. And then if we do our jobs properly and generate some additional return, some thoughtful asset allocating, expand the opportunity set, a little more complexity. You know, the math works out better today. Obviously with investing in life, you have to play the ball as it lies. I believe Schuette McGovern said that to happy. Prior to the inflationary environment, there was a lot of people, I think I was one of them, who thought that yields, we were just in a new universe where interest rates were going to stay low. And anytime they crept up, there was just this tidal wave of boomers with trillions of dollars

that was waiting to come in and bring yields lowered by the bonds. And that dynamic has obviously shipped it dramatically. We can't play in an alternate universe. But was that your operating assumption that yields were going to stay low for the foreseeable future? Yeah, pre-COVID. That was the general thinking. at PIMCO as well. Global savings glut, tremendous disinflationary pressure, or put more simplistically, you know, central bankers had been trying to create inflation for a long time unsuccessfully.

So it was reasonable and rational to think that if inflation didn't pick up, that you're going to be in this relatively low-yielding environment. Again, a lot has changed. COVID, I think, was the starting point. Now, it turns out all they had to do to create inflation was mail everyone checks. until they literally couldn't find places to spend it. Turn the economy off. And tell a quarter of the workers they could stay home. That's kind of all you had to do. Yeah.

And it's funny. Down at an event that was looking at the inflation process, monetary policy decisions and balance sheets and things and for much more of an academic perspective. But when you look at what was different that last cycle, it amounted to trillions of direct stimulus. And there's always been stimulus when an economy's slow. But this time, checks came to us.

But you were invited or encouraged to spend them. And I think that had a lot to do with what we're going through. Plus, again, prevent us about a monetary policy accommodation at the same time. One of the things that, one of the areas of continuity under your leadership is that PIMCO has continued the secular forum. And the firm has been doing this for over 40 years. So I wanted to just ask you quickly for the audience that maybe, isn't familiar. What is the secular forum and what is the meaning of it to the portfolio

managers of PIMCO? Yeah, so it's important. And we've been doing it as long as the firm's been around. It's a bit of a right of passage. I remember I'd come out the summer before I started at Pimco to observe the secular forum. That was a trick. Got there and they threw a microphone in front of me. Now, there was only about 25 of us at the time. The first time you were in the room. First time I was in there supposedly, you know, watching the process. We were like, wait, wait, I'm not even in spelling bones. I'm not ready to conduct the rights. Was it ready?

But that was an important part of the process. And, you know, all young people had to go through and contribute to presentations or to present. So I think it was bigger than just trying to get to the right investment answer. Even today, we treat it like an internal conference. So we bring people out. We have, you know, ice cream socials. We actually had a PIMCO band led by New Yorkers here that came out and joined some folks out in, in Newport Beach just for a little bit of fun.

But the whole idea, and again, I think this is even more important today, was to get away from the noise. As we all know, you know, we get measured over two short periods of time. There's a fascination on, you know, what your NAV did today. And, you know, even back then, you know, 30 or so years ago when I joined the firm, there's just a lot of noise. So I think stepping back away from the noise and looking at trends and themes that would impact economies or markets was pretty important.

Today, I think it's critical. Just the information flow is unbelievable. But you guys bring in outside voices, too. It's not an insular thing. You'll bring in thought leaders and experts, subject matter experts, to talk to the group. I would imagine you're having a lot of AI people coming in these days to just educate everybody. We did. And actually, this year, realizing you can't get to all of it in the week where we conduct the actual forum,

we had a secular speaker series, which was comprised of almost all AI folks. Right. You tend to get the bullish AI message. You know, if people ask me, you know, what podcast do I like? I like sports and I like our industry. But I try to spend the bulk of my time listening to all the tech stuff because that's the area where I have the least amount of feel. But it's very very important. And then we're trying to get a bit more of a, you know, a bearish or cautionary message.

you know, when you're lending against AI investments and at best you get par back, hopefully, unlike, you know, some of these private AI companies where you're talking about, you know, five, ten times multiples, tripling money. It's a different conversation. You guys are worried about return of capital as much as you're worried about return on capital. Correct. And, and of course, there are huge macro implications here. But even if you get the macro right and you make a few mistakes in a bond portfolio, you know,

they're like grenades going off. You know, you can quickly lose, you know, half a percent here, half a percent here. percent there. And, you know, you work hard to, to generate that incremental. So we're going to, we're going to talk about that, that, we're going to talk about that secular theme and what the, and what the implications might be for fixed income. But in this particular outlook, well, last year, the outlook was the fragmentation era. This year, it's called rupture and resilience. I like that you saved us with the resilience part after the rupture part. but it is a meaningful escalation in language from fragmentation to rupture.

So why don't you talk us through what's changed between last year and this year as far as that outlook and what you mean when you say rupture and resilience? Sure. And we've talked about this for the last few years. But in the general thought, at least when you look at the geopolitical stuff, is that for a while, it was safe to assume you're a politician, you generate good economic outcomes, everything's fine. you get reelected. And, you know, most policy was based on, you know, global economic efficiency, the whole globalization

trend. And then we had the COVID shock. And now we have, you know, a series of shocks, populism within politics, the realization that significant parts of the economy, middle income, lower income households, haven't done so well the last few decades. China sort of snuck up on the world, quite large, quite impasse, quite impassehap. both in terms of trying to grow its own economy, but creating disruption all around the globe by exporting cheap products. AI-related uncertainty.

We're just at a point where something did change a few years ago. Politics began, in some sense, dominating traditional economic decisions, like tariffs, as an example. Tariffs aren't there just out of purely economic fairness or efficiency. As Trump has said, you know. The textbooks say tariffs are bad. we're doing them anyway because there's a political reason to do them. Correct. Maybe not necessarily a purely economic reason.

Absolutely right. And there's a lot of that going around. Absolutely right. So that sort of set the stage in something we've talked about. But when you look at the last 12 months in particular, you have outright armed conflict now. Still in the Ukraine with a risk of escalation. Actual war in the Middle East, alongside the type of direct trade tensions, geopolitics.

political tensions, extreme political uncertainty within this country. You look over at the UK, similar dynamic. You look at elections all around the world now. You tend to have candidates from extreme perspectives, typically battling out for control of countries. There is very little true middle nowadays. So, you know, our point with the piece is that, you know, you're starting with financial market valuations that are high. You've had pretty good performance the last few years, yet you're dealing with a type of uncertainty now that most investors haven't had to deal with to the same degree. So be real careful about being surprised. And some of the surprises can be very good ones, AI again. Incredible investment in this technology.

People are making these investments because they think that by making those investments, things will change. So even just the tech trends alone, you know, the almost $10 trillion of anticipated investment are creating just massive uncertainty. And I think that's great. You know, as an active asset manager, it's better to have this type of uncertainty, these types of frictions in markets to generate returns relative to passive alternatives. But anytime things move around a lot, you can lose money too if you're on the wrong side of the trade. So by rupture, you mean like a rupture of the rupture of the existing world order and some of the, I guess, people have talked about this like in terms of

NATO and like just some of the things that we've come to believe are like part of the bedrock of the global order. All of a sudden there seem to be bigger shifts than we're accustomed to. And then that has implications further on down until you get to like financial instruments, currencies. Yeah. Yeah. And that's the macro point. And that's usually enough to create a lot of unsubes. certainty, yet you have now with this, you know, highly innovative new technology that just

arrived on the scene, massive potential disruption to old economy business models, the way that we conduct work. You know, we used to go out to get an accountant to do our taxes. I'm learning. You know, the young kids are teaching me how to do this in the organization. But I actually think that with a little training, you know, that's something you can do with a few clicks of the button and you can go on through different areas, you know, where we have gotten used to things happening a certain way, or all of a sudden, a few years from

now, it could be completely different. So yeah, it's, you know, geopolitics, while also seeing these trends that we haven't seen in a very, very long time. I guess the internet in the early, late 90s, early 2000s comes close. But even there, you know, it feels like the disruptive aspects of this new technology can be, you know, quite impactful for market. So yeah, at geopolitics, traditional monetary policy uncertainties, high debt levels, you know, all these are going to be sources of volatility. Then despite all that, we still have this other source of uncertainty that, again, it's moving fast and it's going to matter.

We just don't quite know exactly how it's going to matter just yet. Staying on geopolitics, you quoted Mark Carney, who very memorably, I guess that was a few months ago at the UN, perhaps. I think it was addressing the world and talking about the rupture itself and a transition away from the post-World War II rules-based regime. I wanted to ask, do you actually believe that we're at the point of no return on globalization and that like things can never go back to the way they were? Or do you think that maybe some of this is cyclical and not secular? Well, we think many of these themes and trends will be hard to reverse anytime soon. Now, politics in our country, of course, at least, you know, the president changes every four years.

We've already seen. So far. So far. So far. Good point. So we've already seen now this is the second term of Trump with Biden in between. When Biden got elected, there was a partial reversal in some of the Trump trend. and we have an election coming up in a little over a couple of years,

and you very well could see if you had a Democratic, more traditional administration, embracing certain global institutions and looking to reverse, some of which has been done. It's the nature of our politics. But with that said, we think it may be bumpy. You may see a situation where different administrations, or depending on who controls Congress,

may move in a different direction or look to try to, you know, get back to where we were a few years ago, but all in the midst of very, very powerful and accelerating secular themes that are going to be very, very hard to reverse. Probably a good example would be tariffs. You know, Trump put tariffs on during his first administration. The Democrats weren't super supportive of that. Many Republicans weren't super supportive of that. He left. The tariffs didn't get reversed. Yeah. I think just an example of how, from a political perspective today, people realize that trade isn't helping all segments of the economy in that tariff policy. And if it's not tariff, some type of more aggressive industrial policy or policy

towards our adversaries is warranted. So it may take a slightly different form, but this idea of dealing with conflict, addressing the China problem, trying to come up with some creative ways to ensure that those that have been left behind by globalization, you know, see a sure for their incomes to go up. Some of these are themes that are, again, going to be hard to reverse and are unpredictable in nature. They can be orderly

or at times represent more disorderly change like we've seen all of a sudden in the Middle East this year. Tensions had existed there for quite some time. In the absence of armed conflict, the economy and market performance this year would likely have been quite different. So you're not sure when these things are going to erupt.

You just know that they're likely to erupt with more frequency than what we remember from the old days. So, Dan, the more you zoom out and take a big picture view, the scarier things get at the global level. People are always fighting. There's always uncertainty. And the more you zoom in, the more the picture gets a little bit less horrific.

So how do you think about the juxtaposition between global uncertainty, what's going on with the straight, and the juxtaposition of that between our economy, which has proven to be remarkably resilient and the consumer that powers the economy, despite the tariffs and the inflation and the AI uncertainty and everything that has been thrown at us, our economy just continues to chug along. And when you're making investment decisions, there's this push and pull between the fears and whatever might or might not happen versus what is happening today. And what is happening today has been a continued, remarkable push through all of these dangers. Absolutely. And I look back at, you know, some of PIMCO's views. We may talk about this later, you know, back in the mid-2000s, you know, aggressive underwriting concerns developing the banking system. We were worried. We thought, wait a minute, you know, if, you know, if this continues, we're going to have a recession. And we began to get really, really concerned and really, really defensive. You flip forward today and yeah, there may be some excesses in certain areas. And, you know, yes, there's uncertainty. But our economy's been incredibly strong.

we have a real, real strong, at least middle and upper income consumer. Home prices have gone up for many, many years. Most people are, you know, close to half the people, you know, in this country own homes. The consumer balance sheet solid, you know, many years of, you know, real, you know, good labor market performance for middle and upper income cohort groups. And now this technology through capital investment, through, and the productivity numbers are noisy. But we get the sense that you're already beginning to. see the positive effect of productivity on the U.S. economy. So despite uncertainty, despite Trump tariffs that in a narrow sense, you know, could lead to some additional frictions in the

markets, we're fairly optimistic. And that does change the way you think about investing. When you're really pessimistic about growth, when you see lots of problems that just, for the passage of time, we're eventually going to lead to a slowdown, you have a very different approach. So the bottom line today is that you want to be cognizant of the uncertainty, but also optimistic about growth. As a fixed income investor, that means you're probably not optimizing portfolios if you're getting wildly defensive and just hunker down in the absolute safest stuff. Now is not the time for wildly defensive. No, not in our opinion. I think it's time for resilience and it's a great word in every in our industry who disagrees with resilience. It's, it's,

But I think the idea is be up in quality or take advantage of this exciting global opportunity set of higher quality risks that can actually generate similar returns to the real risky stuff if we continue to grow like we expect. But we'll provide some downside protection if you end up having a recession. Let's talk about these. Dan, give me chart four, please. This is from your presentation. You're talking about, I don't know if you're calling these like the four drivers, but I'll say these are, like the four biggest drivers, I guess, of global GDP growth or spending or, so you're, you're highlighting AI infrastructure is $7.6 trillion over the next five years.

And you say that is the GDP equivalent of the economies of Japan and France. Then you've got energy and grid, I guess modernization or reinvestment, 2.6 trillion about the size of Italy's economy. You've got defense spending. NATO plus whatever else, 2.4 trillion, which is about the size of Canada's economy. And then finally, reshoring and supply chain, I guess like less manufacturing overseas, more here. Okay. 1.4 trillion about the size of the Netherlands.

So add those four things up. It obviously does seem like along with the rupture of the way things used to be, there's a ton of opportunity, given how much money. is going to go pouring into these things. So talk a little bit about why that's important for PIMCO and for your investors. Yeah, so it's important just from a macroeconomic perspective. As long as that type of capital investment can be maintained, it's going to create a lot of positive momentum for economies making those investments. It's got to be bullish.

I mean, to have that much investment. It's a lot of stimulant. Yeah, it is. It is. And by the way, that bears watching as well. You know, over the short term, you know, all of these. investments can be great for the economy. It could lead to better productivity, lower inflation, but they're very well going to be a timing mismatch. And that's why, again, I think it's important

to note that, you know, although our base case is that inflation, if we get the situation in Iran stabilized, inflation probably stays at this level of trends lower, there's some uncertainty. Just given a massive amount of materials, you've got to go find to make these investments. But generally speaking, positive. And then from a fixed income opportunity perspective, You know, people need to raise money. For a while, you know, these large hyperscalers, these big tech firms were generating so much cash flow they'd never had to come to the bond market. Today.

Invidia. Navidia came today. They don't even need the money in they're coming today, which, again, is a pretty strong forward indicator that even Navidia generating the most cash flow of all is still looking to lock in. I saw it today. It was 20, 30 billion. So this is a key part of the story.

As you mentioned, all of these hyperscale. were producing more money than they didn't know what to do with it. Just sitting on hundreds of billions of dollars in some case of debt. Yeah, buying back stock. So that's no longer the case. Google did an equity offering for the first time, I think since 2001 recently. They raised $10 billion. Oracle announced earlier in the year in the last call that they were going to do $20 billion of equity,

another $20 billion of debt. NVIDIA, to your point. First time since 2021, they're raising $20 billion. You guys actually were a big part of the financing Meta's Hyperion, data center? right? Is that in Louisiana? You guys worked. So was that with Blue Owl? Blue Owls is at the equity on that trade. Okay. So you obviously have a great lens into what's happening with the buildout and where this is going for the next 10 years. So what is your view on the data center buildout?

Yeah. So look at the, the build out's going to continue and it's going to accelerate. It's going to accelerate. From here. From here. Now, again, you're going to have, you're going to get a, you're seeing even over the course of the last few months in a signal like, like, we're seeing from the video today that you know capital investment targets have just gone higher and we would expect them to remain higher even going a bit higher from here frictions are going to increase you're even seeing at the local political level some pushback and that bear is watching as well so it may be bumpy in terms of actual implementation but the bottom line to keep it simple. For a long time, there was very little issuance. During COVID, lots of companies were able to term out their debt. So everyone's been, why high yield spreads? And IG spread so tight. Well,

there hasn't been a tremendous growth of issuance. No new product. Until, no new product, until recently, and this is concentrated within the tech space. That's great for an active manager in that for the first time, in a long time. You know, there's all this froth and private credit. people falling all over themselves to do deals. You know, those that were borrowing didn't have to give on terms because there are plenty of people out there raising money to give them. Oh, this is competition for private credit investors. Well, it's so big now that the capital needs are so large relative to the amount of money

we all have. So everybody can eat. Everyone can eat and we can go out there to actually drive terms. Now, that doesn't mean you like every deal because, again, this dynamic that if I'm a bond investor. At best, I get my coupon and I get par back. And these companies, although they're doing great things, they're going to lead to better productivity, all of them have figured out how to make money yet. So it's a great opportunity because for the first time, we can look at 10, 15, 20 deals, and that's probably what we have in our pipeline today, some of which are on the order of 20, 30,

$40, $40 billion in size. Those are great deals where you can come in. You can do very precise underwriting, you can look to create structures that insulate our shareholders from some of those longer-term AI-related risks and end up with the spread on the deals we like at a significant pickup to your typical investment-grade bond or your typical lower-quality below-investment-grade-type bond. Now, you've got to be careful, and sometimes it may say IG on it. We don't quite believe the rating agencies in that it's investment-grade, but you get enough, Fred Cushin where you can compare it to some type of lower quality bank loan where you don't get good protective terms in the deal.

All this stuff, you know, we read about it all the time where, wait a minute, I thought I was senior and ended up because I had bad docs. You know, someone was able to lend and take away my collateral. Here you have a lot of ability to negotiate and find value. I think Munger or Buffett, I can't remember which one said this. You would make the price, I'll set the terms. And it sounds like you would rather be on the term setting side than the pricing side. Or both.

Both. Oh, ideally. Yeah, ideally. But in this environment, the terms matter a lot, just given the uncertainty, given the complexity. So we think that if we have a chance to help drive terms that we're a large enough firm, we have perspectives from our real estate group on the risks of developing a data center. We have folks on the infrastructure team or the old asset back lending team that understand the nature of those types of contracts and how, in theory, it may sound like you have good collateral,

but you better make sure you have the ability to go get it and realize on it. And then when you have to go get it, the price is a lot lower on that collateral than you tend to think. So that's an environment where we should be able to add good value for investors. But one, we don't want to be wildly overweight this risk. It's a sector where we want to generate attractive return, not own too much of it. And your investors own equities too. Correct. And they're already probably all in.

Yeah. And that's a great point. And then I was going to mention the correlation piece. So when you looked at that chart over there, you know, you saw, okay, well, there's AI investment. and then there's energy investment. Well, they're related because, you know, you've got to figure a way to keep the data centers or the manufacturing facilities on.

So when you start looking at portfolios, it's pretty important to think about how that risk may move together and realize that you're not going to quite know for sure, which gets back to this idea that anytime you're going to raise $10 trillion in a market, yeah, there's a great opportunity. There's also a lot of risk, especially if you own. So I want to ask you, from the perspective of an end investment, So not you guys as the portfolio manager, but your clients.

I understand the benefits of investing in AI infrastructure on the equity side. I might invest in something at $10 million valuation that turns in scoreweave. I totally understand that part. What's the pitch to invest in digital infrastructure or AI cloud data centers from a fixed income investor's standpoint? Why is that attractive? Are the yield so much higher, or is the risk mispriced in some way where it's way less risky than people assume? Or what would be your answer to that question? You know, I'll bring it to two reasons.

I mean, we could talk a lot about all the nuance in the market. But the first would be that you can structure safe risk, true investment grade type risk. That's my favorite type of risk. Yeah, it's a easier one. Safe risk is great. But lower yielding. Again, you're in the investment grade space. Nowadays.

Still have the give or take. Yeah, you're looking at six, seven, eight percent type returns in a asset that, if structured properly, at the end of the day, have credit risk that looks a lot like meta. And meta, again, is a much better tech firm than others in this space because they're more diversified. They're generating more cash flow. They're in popular indices. So you can take advantage of owning meta risk, a company that we do think is solid investment

grade. generates tons of cash flow, very sticky business model, probably going to be around for a long time. Right, exactly. And you can do that at a spread pickup to their underlying credit of two percentage points, as an example. So now you're talking about getting the same type of yield you get on typically a very high-risk investment for something that's a bit more complex. It happens to be quite liquid as well. So if investors change their mind, they can sell out of it very, very quickly. In fact, that bond in question is one of the most likely.

liquid bonds out there in the market. What's that the meta data set of the cost? That would be the Benier deal, that data setter deal. Just giving it size and given the sponsorship out there, that's a very, very liquid instrument. So that would be one, you know, a high quality way to generate much higher incremental return. So instead of only a high-eil bond fund, I can own this type of risk that's investment grade,

get the same type of spread. Okay. The other bucket, and there is this entire other part of the ecosystem, which, is risky lending within this space. There, we think investors, and we'll look at that risk as an equity alternative. So we'll compare it to a NASDAQ stock or we'll compare it to a dividend producing equity investment and say, yeah, it doesn't have the same type of safeguards. We're still going to be careful about concentrations, but we can go out there and, you know, target deals that are well structured, but lower quality. And now we're looking at 9, 10, 11,

12, 13, 14, 15% type returns. So you compare that to historical risky stock returns. It looks pretty good. I think it's very, very important, though, for investors within PIMCO and elsewhere, to put it in the risky bucket, though. I think the problem is when you have a lot of AI euphoria going on, when you've had a period where we haven't had, you know, a loss cycle in a long time, you can create the illusion of safety just because those types of.

assets haven't moved around a lot in the past. Nothing bad has happened yet, therefore, I should be talking. It's all okay. Yeah, and of course you do get the current coupon. So, you know, again, unlike a AI stock or VC stock or some of the names that are out there that are doing real well, there, you know, you buy it and then you hope you can sell someone at a higher price in the future. On some of the riskier areas of this market, a lot of times you are getting a 10% yield

or 12% coupon, that creates some stability. Because once I get that coupon, you can't take that. it away from me either. So, you know, we do think that as a form of maybe equity replacement or as alternative to equities at these very high valuations, you can carefully move into some of these areas of the market in the higher yielding riskier space and generate good value. Let's stay on that equity high valuations. Dan, can I have chart six? The equity risk premium in the U.S. is basically zero. That's by your own data. Yeah. But you're not calling for any kind of like imminent equity correction or bare market.

But sort of like, is that implied, is that implied when you think about today? Like, how much do you care about equity risk premium would be the way I would phrase that question? Yes. First of all, we picked a chart. As you know, there's, you know, 10 different ways we could have essentially communicated the same thing. What are we looking at here?

Just, well, I don't even know which one this is here. This is probably a, this is a Schiller, you know, P.E. that's just being being graft here. Showing forward returns below the 0% line. Yeah, basically what this says, what this says is if you smooth earnings or if you adjust earnings and then compare what you have to pay for stocks

based on this assumption, they're very, very expensive, and they're near the most expensive they've been relative to bonds in many, many years. Now, again, you can look back at the last time this stuff got real expensive, and you'll notice, you know, it's expensive today.

it can get a little bit more expensive. Those were the years leading up to the internet bubble bursting. So I say this and it'll sound more alarmist than I intend. But one way you poke whole of these in these charts is you say, okay, well, yes, under these types of longer term valuation metrics, equities look expensive. But if these tech companies are leading equity markets and their earnings growth is, you know, double digits for the next few years, you can justify these valuations. You have to adjust by the earnings growth.

and as it comes in, it makes the multiple look more reasonable in hindsight. You know, we were talking about the Schiller-Kap ratio screaming about it literally in 2015. People were getting alarmed. So I'm not making a prediction on full returns, but by traditional metrics, valuations have looked stretched forever. And these tech giants have just continued to rewrite. And margins just keep growing. Yeah.

What we thought was possible. Correct. And that's why these types of relationships aren't great as a trading signal to say, okay, all of a sudden, short the market. And then they also get into concentration type risks where for the average investor, you're getting a point now where because the tech stuff's gone up so much, you need to go out there and find diversification. And you can shift around these metrics depending on what equities you're looking at. But I think the bottom line is when you look at these starting valuations and then you look at subsequent returns over a five or a 10 year period and you go all the way back to the late 1800s. Not great.

Not great. And in fact, quite negative relative to the starting point for yields. But again, this type could be different. It does feel a little bit different. But I think the point is that, you know, it's been a bad period for bonds. They've generated almost no return after inflation for 15 years. Stocks have just steadily gone higher. And in theory, you know, you get to a point where, and we strongly believe that valuations have shifted to a point where the next five to 10 years,

years are probably going to be different. And on the fixed income side, you earn your yield. You don't know what it is after inflation. You don't know what it is if it's in a different currency. But in high quality bonds, it's fairly simple in that you start with a yield, a boring index. I say it respectfully, but it's not super exciting. The, you know, the Bloomberg aggregate index. And you're at near a 5% type return. You buy a bunch of other high quality in a paper, give up some liquidity. You're at a 7% or 8% yield. Ninety-five-ish percent correlation between star. yield in five-year-forward returns. You could almost set your watch by it.

So let's explain that for the audience. So the correlation between the starting yield and what you end up returning over a given period of time. So if the starting yield of a portfolio is 7%, you should not be expecting 11% returns or 3% returns. It's going to look, hopefully if things go well, closer to that 7 on an average annual basis. That's right. Then, you know, it could go up or down based on, you know, trading strategies along the way.

Hopefully it's a little bit higher than that. But simplistically, if you don't want to give any benefit to, you know, the active piece, that's what you earn. So going back a few years ago when yields on that index were 2%, what do you expect. And we ended up with two. We ended up with, you know, 22 is back because it can all happen at once, just like stocks. You know, people show me that chart. Well, what does it mean? Well, it could mean that equities just disappoint slowly.

Yeah. Or they reprice massively and then they look cheap again. You know, that we don't know. And bonds bounce around as well. But, you know, what I do for living, I say time and time again when our clients come in, it's, it's, I'm glad I don't do the VC stuff. It's just not the way that myself and others at PIMCO are wired to the same degree in that we like the cash flow piece. We like to forecast based on cash flows, they create a predictability to what we do.

You guys talking about, you know, again, you know, the AI investments and, you know, where someone's going to pay for something that's not going to have a dividend, you know, maybe ever. That's tough. It's unpredictable. I guess because it's a whole different mentality on the part of the PM. Can we talk about, can we talk about fixed income? You say the credit loss cycle is upon us. Define what you mean by that. Are you talking about like a wave of defaults?

Or are you talking about sort of a slow grind of maturity extensions, payment in kind negotiations? Like is it, it's a blow up or it's just sort of a return? to normal and it's glacial and nothing to be alarmed about. How do you see it? Yeah. So I think the return to normal parts of, yes, and that this does require a little bit of nuance. But we coming out of the global financial crisis, you know, it's been a very, very unique period in that you've typically, and investors have grown used to earning almost your entire yield when you invest in risky credit, below.

investment grade credit. No recessions. No recessions. Then COVID came. They papered it over. Papered it over. So you look at the stats and you can see that if you look at the same type of risky credit. By the way, mid-market direct lending is risky lending. It's performed very well, but it's risky. Not reasonably. Not irresponsible. Bank loans, you know, broadly syndicated bank loans, you know, risky lending. Performed exceptionally well. Back in the 80s and the 90s and the 2000s, you know, you'd earn a lot of yield, then you'd have some type of loss cycle, you'd give a lot of it back, then you'd earn money for a few years, you'd give it back. It's been one way.

But Dan, sorry to cut you off, but I think one of the problems or one of the things that lulled investors recently into complacency is those bonds performed in 2022 because there was no recession and they're plain vanilla bonds. And they don't, investors in general don't really understand that it was all interest rate risk. And so as interest rates went up, their government bonds got destroyed. And these risky corporate loans to middle market companies return 9 to 11 percent. And so it further made those coupons much more enticing.

Absolutely right. And then the market convention is different if they were the private version of those investments. So you even had, you know, less volatility than what you had, at least briefly, in the tradable high-yield bond market. So all true. And what we're getting at here is so we don't expect a wave because we expect economic growth to hold up. I said this the other day. A steady stream. But a couple of points.

One, given how much money was pouring into the lower quality credit markets, it was easy for a while to just kick the can forward, pick interest where a company, you know, a company, you know, was struggling to make their coupons. We can't pay you back, but we'll give you more bonds. We'll give you an IOU. We'll pay you later when we can. Or we'll extend the maturity. So when you have inflows coming in as a portfolio manager, you're feeling more generous to

allow a company to do something like that versus take them to court and try to take blood from a stone. Correct. And when you have a more traditional, predictable economy where, you know, work as we know it isn't being disrupted. So you had the liquidity piece, money pouring in, easy to extend. Private equity, we can't realize on the investment we could wait. We'll extend our debt. Some will give us an extension or they won't make us pay our interest for a while. that dynamic has existed over the last few years. Now, actual losses have steadily gone higher, but the prediction in terms of future losses, and usually when you're allowing a company

or when a company can't meet their current interest payment, that's a good or bad signal in terms of their ability to afford that over the long run. So that's one piece. The piece we wanted to highlight this year, though, that has been the real change is that AI disruptions here, all this AI investment is looking to feast on old economy businesses, businesses that had the so-called boats, they had attractive current cash flows, they did so much of what we're used to them doing. We're saying professional services, tax, software.

Lawyers, financial services. Financial services, software, all of these areas of the market that are likely to be disrupted and disrupted with increasing frequency. And I think the point we want to make is that that time has arrived. You're going to be, you're going to see higher realized losses that we've seen in quite some time. And those losses are going to be somewhat independent of the strength of the economy. You have this very, very unique situation where the more productive AI is at the economic economy level, the more disruptive it's going to be. It's almost necessary.

It's a way. It's a lotology. It like almost has to be that way. So that's what you're going to have. And then I want to be careful too because it always comes across as overly alarmist if left there. We think it's a steady stream of losses now, not a wave. If you combine this AI disruption with a negative growth shock to the economy, especially if it's stagflationary or put more simplistically, you know, this is a risky macro setup in that all of that debt that we talked

about that did so well in 2022 is floating rate. If you don't get that short rate down, or if that short interest rate or the, you know, the policy rate has to go higher, now you have companies that are facing AI disruption. They already have a lot of debt. And higher cost. And higher cost to service that debt. So any type of growth shock with inflation remaining elevated would be a far worse scenario for credit. We're not forecasting that. So the point we are simply, you know, trying to make here is that what used to be an unlevered 8% return with very few realized losses, especially given how aggressive lending got coming out of the COVID period. Those were really bad vintages where spreads were super tight,

and because of this battle for market share, you just weren't getting good protective terms on your debt. So those types of segments of the economy that were used to having losses close to zero are likely going to have a period where those losses end up migrating up to the mid-single digits. So that old 8% type return that you were getting back when high-quality bonds were returning one or two is probably going to be four or five percent for a while. Probably with four or five percent today is I can buy an Australian government bond. I get that too, but I could buy a, you know, finally I could buy a treasury bond at four and a

half. Yeah. Well, your piece, we started the show with the rupture. What was going to start of the rupture? Something better? Resilience. So one area of rupture, we have a new Fed share, pretty unconventional by traditional standards. And one of the reasons why fixed income has been so challenging is all of the government

intervention in the fixed income market. Some of it needed. Some of it, you know, you could argue was, well, was very excessive. There was an article in the journal this morning, Kevin Warsh. Nick Tamayo said he wants the Fed to stop explaining everything. For decades, the Central Bank believed talking openly. All right, we understand. Are you a fan of the overwhelming amount of transparency?

The fact that these Fed officials, these governors have been basically on a podcast tour for the last decade or? so, do you like that level of transparency? Like, what's your thoughts on policy today? That's great. So I like to differentiate when I have a, when I'm reflecting a PIMCO view versus a personal view. So this is an area where we have a little bit of difference of opinion.

Of course, we have Rich Clara, to the former vice chair of the Fed. He's done his share of speeches and things. Great speeches. Let me just say this. No, I don't, look, I think, I think, don't care, I guess would be the first point. In the sense that, in the sense that, look, don't care about whether they speak or not?

As a market practitioner, I think that a lot of the speaking that's gone on is interesting, but not essential for the markets to have a good sense of what Fed's thinking is. The crowd loves what you're saying. You wanted to shut up. I, because I'm from the old school, I liked Greenspan. He would come out once a year and speak in riddles like the caterpillar from Alice in Wonderland. Nobody had any idea what he said. It was by design. He said, if you understood what I said, I made a mistake.

And we were somehow able to manage capital markets, no problem. I understood the hard pivot toward overcommunication in the Bernanke years. It's already four Fed chairs ago. Why are we still doing press conferences like they just won the NBA finals? Every time they go up or down or nothing. It makes no sense to me. Well, Warsh is speaking on one's so. Yeah, well, they're long.

And then, you know, even dots and things are the individual views, which, again, you know, views usually tend to be pretty good around policy when you're looking forward a month or two. But when you're looking forward several quarters and you have it. They're always, we're data dependent, but here's our 12-month outlook. What are we doing? Yeah. So I think it's a lot of noise. And I think the markets will be just fine with more standard and targeted communication.

The other point is, you know, what we hear about Fed's behind curves, ahead of curves, with just a few words, you can control market expectations. And sometimes you don't need any words at all. For example, we started this year, January and February, we had bonds rallying. There was this mindset. I think over the long run, it's a reasonable mindset that all this AI technology is going to put downward pressure on prices. Disinflationary. And then you had the war breakout in Iran.

It didn't take a single Fed speech to get the front end of the yield curve to go, because now people knew inflation was higher in that it was less likely that you're not talking about insurance cuts when the bomb started dropping in and around the straight of Hormuz. We all understood it immediately. We didn't need a speech. Correct. And then, you know, you see it with stocks. Trump administration, Trump himself tweets about the potential for a deal.

Stocks rally. News comes out that a deal is not going to get done. They sell off. By the way, bonds were moving in the same direction more recently. So, you know, we do think also that a Fed has the ability to influence market expectations if they feel it's necessary with just a few targeted words. And that by the time you're beyond the occasional speech or the occasional comment into massive discussions, we just think there's just rapidly diminishing. Warsh is seen as an anti-activist, like a do less. I think that's that it's not, he's a hawk, he's a dove.

It's not about that. It's, I don't think the Fed needs to be doing all that. Like, the Fed might be doing too many things all the time. Well, this is a quote that he gave last year at a state free conference. He said, if you're not very good at something, you should do less of it. These forecasts have been abysmal. And he said, my dots wouldn't be perfect either. So I just wouldn't give them.

Yeah, so we talked about this in our recent piece. We think, you know, a worst Fed will be sufficiently independent in the areas that matter to the markets, which are funds policy and balance sheet. There's still some uncertainty. We think in a perfect world, you know, a Warsh Fed would like to get the balance sheet down quite a bit. But I think that this is a Fed that, again, it's a committee, not a chair decision. And I think there is the appreciation that with inflation elevated, with the balance sheet down to a manageable level,

that it probably makes sense in the base case just to wait and see, don't rock the boat too much. That's our best sense of this Fed. even the Powell Fed has been dovishly inclined, looking to get rates down ahead of inflation, starting the year with at least the hope of getting that funds rate down further. So we do think that this is a Fed that would like to have the opportunity to get rates lower even before inflation makes meaningful progress towards their target. But we don't think that it's super different than Powell other than your point, And that I, we do think the Warshved from a philosophical perspective wants to be a bit more rules-based, a bit clearer or more straightforward in their, in their communication.

He's going to come out on one day and say, no change. See you later. Yeah, yeah, yeah, yeah. It'll be interesting. It'll be interesting. I think, I think something tells me the financial media would be able to even take that sentence and do three hours of content about it. So how, like, which syllable did he emphasize most? All right. Putting that aside. Here's what I want to end. You talked about AI being this massive opportunity. You're forecasting trillions more in spending on data centers. You actually think it accelerates.

You guys are funding these deals. I think our audience would love to hear from you, your perspective, on the way in which this can end up being disinflationary and what impact you think it might have on not just the overall economy, but the people that are in the economy. Are you glass half full? Your glass half empty? Like, just what's your perspective on where all this is headed? And you can tell us your personal one as well as your professional one if you want to.

Well, yeah, and it depends on market practitioner. Nobody's listening. Yeah, I know. But, I mean, I think there's a markets view. And all too often, I think this is that, you know, what's good for markets is not so good for segments of the economy. And those tend to be the lower income cohort groups, which is a challenge. We saw with globalization on page. It made a lot of sense. It probably did lead to higher global growth, but it also created

instability for those that have the least economic flexibility, and we're still dealing with this today. So, you know, our general view, despite the uncertainty, is that, you know, AI could lead to, you know, some inflationary noise the next few years as you go out there to find materials to build this stuff and into power this stuff. Over the next several years, though, we do think that AI could be a game changer on the productivity side. bring the costs for providing goods and services down and down quite considerably. Those costs are people's salaries. And unfortunately, I was going to get to that.

So again, from the standpoint of where the inflation rate may go, it's probably positive. It could even be positive for our debt picture. We didn't spend much time talking about all the corporate investment, but we're still spending away too much money at the government level. I don't see that changing this. Yeah, we'll find more. Yeah, yeah. We'll come the next time.

We'll come back. We'll cover that. But we do think, you know, unfortunately, we do think it's going to lead to some displacement of workers that, particularly the middle income professional cohort group, could see more uncertainty than they've experienced in quite some time. White collar unemployment. Agree. And that could lead to higher precautionary savings, a little bit less consumption, which can have a moderating impact on inflation and be good for the markets as a whole, both stocks and bonds. but it can also lead to more political uncertainty, the risk of regulatory backlash, and a lot of tension.

So we do think that it's hard to accomplish all of this in a neat and clean way where you can retrain folks fast enough to not create some frictions, some unpredictability, and perhaps even, you know, a pretty big reaction against what is perceived to be a technology in companies that are creating this disruption. So it's likely to be bumpy. So high-level macro and financial market impact, we're fairly constructive while realizing that we got a lot of uncertainty. And again, when I take my investment hat off and look at the potential disruption that, yeah, on a textbook basis, ultimately it's probably fine. You end up retraining folks. It's good for the economy as a whole. We just worry that they're going to be real timing issues here.

So the CEO of Google giving the commencement remarks, at Stanford this weekend. And they showed video on social media of hundreds of students walking out. And I said, oh, this is probably about like AI. They don't want to hear the AI CEO in chief, you know, talk about. Turns out it wasn't. It's it was about like Google's contracts with the government.

Okay. You know, all the causes were not getting into it. Eric Schmidt got booed out a couple weeks ago. Yes. But so I was wrong with that assumption, but I do think the general direction of this stuff, I think it's going to be an issue in the midterms, especially in states where there's a lot of data center construction happening.

But putting that part of it aside, we had 150,000 layoffs in tech this year, which is not big enough to have shifted like the national employment numbers, but at 40,000 of those were last month. So the pace of layoffs within tech is actually rising in the biggest bull market for the NASDAQ in 30 years. I thought that was interesting. A lot of people are saying this is AI,

including the companies themselves. Look how efficient we're becoming, thanks to the ROI from our AI investments. The venture capitalists who were backing more AI investments are saying, no, this is just CEOs with bloated workforces using AI as an excuse to do something they would have already done. You guys have a strong point of view about whether or not we're going to see that accelerating in the

second half of this year, and will it spill over from tech into some more Main Street industries? Yes, our biggest concern for the remainder of the year was the Iranian situation. That's a big or that's a much good deal. Classic energy shock in that if we didn't get that addressed, you know, you start seeing more, more, more imbalances on the physical side, that that would really be the negative for the economy. We think if you get the Iranian situation under control defined as not perfect clarity, but just more oil flowing, you know, through the straight, less than certainly there. We're pretty bullish on the economy going into year end.

What you're describing, absolutely, we think, will be a key theme the next several quarters, certainly the next few years. We think it probably won't have as big of a direct economic impact, but it's going to be an ongoing theme. When we look at our business and we look to plan ahead three, four, five years, it's not so much that we're looking to make major changes in the workforce. It's just the acknowledgement that the type of skill set that's optimal is going to evolve. So where you may have had, you know, 200, you know, new folks coming in with more traditional finance backgrounds.

Spreadsheet, discounted cash flow analysis people. You probably need less of them. Absolutely right. And then you're going to end up with folks in the tech groups looking to leverage the folks that have those skills. So I don't, we don't know what the ratio. will be necessarily, but it's that type of dynamic. And again, you know, what's important is empowering, you know, the younger generations that understand this tech the best.

So there's even just a shift in mindset in terms of seniority and who you surround yourselves with realizing that that optimal mix is likely to be different than what folks like myself that have been doing it for a long time would naturally think is the case. But we do think it's it will move. it's moving fast by typical economic standards, but we definitely think this is going to be a multi-year theme. He sounds bullish on balance.

He sounds like constructive, right? Yeah, most buying guys are not that as constructive as yours. We like that. And I'm not accused of being optimistic. You know, Pollyanna. Especially I'm certainly, I'm somewhere the Knicks had on it. As a lifelong Celtic fan, I should be down right now. Oh, you have your share.

Stop it. Is there anything you'd like to say positively about Jalen Brunson before we let you go? Yeah, he's a Villanova guy. I used to like him. He's a great player. He's a great player. He's a great player. He's a great player.

Yeah. And he plays the right way. So it's been exciting. It's fine. Saturday night, I sent around a, I congratulate. I think it was Georgia for a win in the NCAA baseball tournament. And then I mentioned that Hartford Whalers won the cup this weekend. Anything you could do except the next.

The next. But it's all got it. I think we would let some folks out early for the break. Daniel Iverson, this has been such a pleasure for us. We were huge fans and admirers of yours and of Pimpco's as well. And I wanted to let people know where, Agnes, where could people go for more insights from Pimpco and the team? Pimpco.com?

Okay. And is Dan going to start a podcast anytime soon? No. Probably not. All right. Well, you guys, do it, do it incredibly well. Really an honor to be here with you guys today. Thank you.

Thank you. All right. In hour two. No, I'm just kidding. All right, Dan Iverson, ladies and gentlemen, thank you so much for joining us. Guys, thank you for watching. Thank you for listening.

We'll talk to you soon. Hey, y'all. It's Kelly Clarkson with Wayfair. Ever order furniture online and wonder, what if? Like, what if it doesn't hold up? That sofa was four days old. You should have ordered from Wayfair. With Wayfair, there's no what if.

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