Manny Roman: When you look at how much the market reacted, they didn't react that much. I mean, bond yields went up 5 or 6 bips yesterday on the ten year. And the stock market is is down 2%. I mean, it's it's it's, it's not exactly right. An earthquake. And so I do think that, the market is very rational and essentially discount a lot of the nose and look through it. The day where, the market is really concerned about something, you're going to see a much bigger reaction. That's the first point. The second point, I think, is, the currency barely move. I mean, I was looking at euro and sterling this morning. I mean, we, we we flat as a pancake. And so the move away from the dollar. Yes. As, a a secular trend, the fact that you want to diversify away from the dollar mix makes sense. And you want to have other currency, you the dollar, but the dollar remains the reserve currency of the world.

Tracy Alloway: Hello, and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway and I'm Joe Weisenthal. Joe. It's back.

Joe Weisenthal: What's back?

Tracy Alloway: It's back. No, it was South America trade. Oh, the sell America. Yeah. Various flavors of what the comeback could have been, but all seem to be converging at one. Yeah, I should have been more clear. So we are recording this on January 21st, and this comes a day after we saw a pretty big sell off in the market. What was interesting about that sell off is it was a trifecta of U.S. assets. So you have the S&P 500 down, bond yields up and the dollar index down. Yeah as well. And so obviously people are talking about is this the start or the restart of the sell America trade. All of this is coming in the context of Trump's threats against Greenland. Lots of geopolitical risk.

Joe Weisenthal: Yeah, right. And it probably won't change on a dime. And the reason is because while yes, it is true that probably the, you know, tensions in Europe over Greenland, NATO, etc. are very important. Mark Carney having given a pretty extraordinary speech yesterday. There's also the Japan element and the rising bond yields in Japan, which is related to, you know, I don't know, Abenomics 2.0, perhaps with the, new prime minister and so forth. And so then part of the story yesterday and you mentioned the trifecta selloff, but part of the story yesterday fairly sharp, increase lately in, long end rates in the US and, Japan, the 40 year bond and JGB, which never existed up until like 2007, apparently hit 4% for the first time in history. You know, we were looking at some 4%, ten year rates, as recently as October in the US, actually, maybe even as recently as December. Now we're closer to 4.3 again. So like, you know, though, if people keep thinking like mortgages are going to come down, etc., and not going out looking like. And so there is a lot going on in terms of potential theoretical drivers, etc.. But the important thing is that rates at the long end keep pushing up and people seem to be avoiding traditional safe havens.

Tracy Alloway: Well, this is the debate, right? So Scott Bezzant, in Davos, like a lot of people at the moment, he thinks the U.S. Treasury sell off was just, you know, the Japan effect. Yeah. And others think it's a geopolitical risk premium. So, you know, we need to get into all of this. Yes. And we have the perfect guest, really the perfect guest. We're going to be speaking with Manny Roman. He is, of course, the CEO of Pimco. So Manny, thank you so much for coming on Odd Lots. Thank you for having me. Why don't we start with that last question when you're looking at bond yields today, how much of that do you see as the geopolitical risk premium. Versus just a follow through from the Japan selloff?

Manny Roman: Well, I think I think the honest answer is it's a mix of both. But, when you look at when I was listening to you and when you look at how much the market reacted, they didn't react that much. I mean, bond yields went up 5 or 6 bips yesterday on the ten year. And the stock market is is down 2%. I mean, it's it's it's, it's not exactly right. An earthquake. And so I, I do think that, the market is very rational and essentially discount a lot of the nose and look through it. The day where, the market is really concerned about something, you're going to see a much bigger reaction. That's the first point. The second point, I think, is, the currency barely move. I mean, I was looking at euro and sterling this morning. I mean, we, we we flat as a pancake. And so the move away from the dollar. Yes. As, a a secular trend, the fact that you want to diversify away from the dollar mix makes sense. And you want to have other currency, you the dollar, but the dollar remains the reserve currency of the world. And so I think all of this was a grain of salt and, and, and, you know, we, we, we animals in the best possible way and we look at the screen and we tend to overreact to what we hear and so on and so forth.

Joe Weisenthal: On the other hand, this upward pressure that we continue to see on the long end of curves, setting aside one week or whatever, whether we're talking about Japan, the U.S., elsewhere, like, what is the bigger story that we're, like, taking from?

Manny Roman: Well, I think I think Japan is quite, a, quite a peculiar situation. Okay, let's talk about top Hand. Let me start with the US because it's it's the easiest thing. Look, rates have been essentially in a range for the past year and a half. And I think I think the Treasury and the fed would be very focused on the long end of the curve. And I think that fixed income offer is a really good entry point in terms of investment. I mean, we talked about the S&P. The S&P is very expensive. Investors are going to look at, you know, long term fixed income and say, I can make 6 or 7% or holding a basket of fixed income that looks really attractive. And so I think every time you build back up, you see money coming back. You know, I talk about Pimco. The flows have been incredibly good over the past 12 months. You know, people have come and bought U.S. asset and and the trend is very is very clear. Nothing is changing. And we have people basically saying I can get, you know, equity like return using fixed income. And for as long as that remains the case, I think the rates have very bounded in terms of where they're going to go.

Joe Weisenthal: Okay. Japan is a very, specific situation. I just came back from Japan last week. Oh, great. I mean, you feel you feel bullish.

Manny Roman: I think everyone you meet, is bullish equity. You know, I started my career in 1987. It's the first time that I see the Nikkei above when I started. I mean, it's it's it's it's unbelievable. But yes, you know, there is for the first time inflation and the get of the curve, is, is probably going to go higher. And that's probably overall a good thing. Now the super secular trend is the demographic pressures are a real problem a real problem. But the I think one of the thing we try to do is look at the liquid instruments. [...] I was surprised by, the fact that you have much more activism in the stock market, people to try to take ownership in a company. Yeah, trying to turn them around. Breaking down conglomerate. [...] And then when you think of the AI robotic trend, you know, the one thing Japan knows how to do is to make things and to make sophisticated, product and, and, and I think that all of a sudden there is a competitive edge that Japan has, in terms of a number of stock which looks attractive.

Tracy Alloway: Just on the bond sell off. How much of that is the return or expected return of inflation versus Dutch sustainability concerns? Because this is the other thing that's been very long running in Japan. You always hear it's a heavily indebted country.

Manny Roman: So I was I was talking with Rich Clarida, who is our chief economist, friend of the pod, as one of the fed. And I said to him, I said, you know, we tend to look, debt to GDP. What if we look, at debt to household savings? And then you realize for both the US and Japan that there's just a lot of money. Yeah. In the US was the baby boomer in Japan was savers who tend to not to spend enough. And if you believe in fiscal policy and the fact that eventually taxes will go higher, then I think that the dynamic becomes quite different. And you can have higher sustainability in terms of debt, because the ability to collect money is there. You look at the US, for example, you know, you could have at some point in time how your inheritance taxes, this $80 trillion of wealth in the baby boomers, eventually that will go to the next generation, but it would also go to the state.

Joe Weisenthal: Do you might have put it on the sort of like CEO of a big asset manager hat? You know, in California there is talk about a wealth tax, etc. there's talk and, there's talk in Europe about wealth tax is there's people talk about, oh, when like set up my family office or whatever somewhere in the Gulf and avoid all this. What do you see on that front. Do you see money moving at a significant degree high? No. High net worth or ultra high net worth clients really thinking about where their money is domiciled in a different way.

Manny Roman: So you knew there was something good about me is that I'm French. And so I've seen firsthand the experience of a wealth tax. Yeah. Tell us more about that. Well, it turned out to be a disaster because, the reality is people can move. And, they decided to vote with defeat, and they didn't believe that the government would keep the taxes. You know, historically, 2 or 3% of wealth. And they decided to go to Belgium or to Switzerland and to other places and so on. So I think the evidence in terms of how well wealth tax work is quite mixed. In California, you can cross to Nevada and, decide, do you want to live in Nevada? God forbid. But then you have to live in Nevada. But you got to live in Nevada. But there are many other places, and there's anecdotal evidence of people moving to Austin and setting themselves in Austin and so on, so forth.

Tracy Alloway: I think you gave us a very polite prompt earlier to talk about mortgages and mortgage reform, and we should do that because I know that Pimco has been very bullish on mortgages recently. I see a Bloomberg headline just from last week saying Pimco sees mortgage rates easing on Fannie Freddie purchases. Those are part of the Trump administration's efforts to bring down mortgage rates. But, of course, at the same time, you know, we started out this conversation talking about the 30 year yield, which is ticking up. How are you thinking of, I guess, those two tensions in the market.

Manny Roman: Look, I. It's a complicated tension and the if you put yourself into the shoes of the US administration, what looks clear to me is you want mortgage rate to be lower rather than higher. [...] mortgage. You know, 30 year mortgages and the whole mortgage ecosystem looks cheap and there's plenty to to buy. And it looks attractive. Yes. We do think that, you know, the purchase will help, in terms of attrition, but, I don't, you know, I don't know what I don't know. [...] the US if you look at it from a macro standpoint has a shortage of house. Right. So we need more homes. And the, the reality is when you look over the 30 year period, the only places where costs haven't gone down is building, you know, and the reality is we need more cheap houses, especially in affordable housing.

Tracy Alloway: So, okay, speaking of robots, AI has come up a couple times in this conversation. One of the interesting things that's happening in the credit market right now is that AI is becoming a much bigger force when it comes to investment grade debt. So lots of big companies issuing even more into that particular market. How does that change the credit market, if at all, for you?

Manny Roman: Well, I think you reported we try not to talk about single positions, but you reported that we got involved into a very large, 20 plus billion dollar transaction for, to build data center. And, some of these deals are going to be incredibly attractive and some won't be, and so I think we I think what's really interesting is the big data center. User may actually be a better rated company. And so, Oracle or MIT, or any of these company actually have a capital structure where they may need a lot of money, but the money is backed by market cap. [...] And so size is a competitive edge that plays well to our strength. [...] Well, not everyone can take $25 billion of a deal. True. And so I always say, you know, one of the thing was that we constantly think about is what's our competitive edge. And we big. So and we do one thing. We do fixed income in all shapes and form.

Tracy Alloway: Since we're on sort of CEO, executive level topics, just on AI, this is a question we've been asking a lot of our guests, but how are you incorporating AI, if at all, into your own workflow and organization?

Manny Roman: Oh, I think we I think for us the sort of defensive and offensive opportunity. So, the defensive one, it should increase significantly productivity in terms of everything we do from, the way we manipulate document, the way we create marketing, the way, we optimize our trade function. [...] Anything which makes the factory simpler, more efficient and safer is a really, really good thing. I would help to do this. [...] And then there's the offensive part where you sort of sit, okay, can I use, a large language model to try to extract from data inside an opportunity that I may have missed? [...] So when it's, you know, in the mortgage market, you have your house, your mortgage, your credit score, a picture of your house, your insurance, your employment history, your communication with your mortgage provider. All of these things, I think should give us a finer assessment in terms of what's happening.

Joe Weisenthal: Why is it that, Liz Truss is like, okay, this was like a dangerous thing. She was like reckless, etc.. Whereas new Prime Minister of Japan comes in, takes talks about Reflationary policies. And you describe as like everyone is excited about Japan right now. What is the difference between the inflationary impulse that Liz Truss was expected to have, accelerated with the mini budget versus maybe the more benign reflation that you're mostly describing as a sort of positive development in Japan.

Manny Roman: What I think I think what happened is she gave this whole tax package at the same time. So she wanted, you know, there was like this liberalization and dismemberment tax package where clearly someone had to kind of figure out the the very basic math in terms of what it did to, government, government spending. Yeah. And then all of a sudden you had a huge deficit that the market so and say, oh my God, there's no way you can do this. This is not realistic. And, and the back end of the curve just went crazy. I mean, at some point in time, fiscal policy really, really matters. [...] And somehow I think, I think the left hand in the right hand forgot to talk to each other. And they came up with a package which made no sense and clearly hadn't been blessed by the UK Treasury. And, and, and the market reacted incredibly strongly to that.

Tracy Alloway: I'll ask one more question, which, you know, I think when it comes to Pimco, I think it's often underappreciated how much of Pimco is about those sort of overlays on top of the fixed income positions? And so I have to channel my inner Bill gross here and ask, are you selling volatility into this particular environment?

Manny Roman: Well, I think, I think we I think we look at volatility all the time. And I think when, when we find opportunity to sell volatility, we do and it's sort of unfun. I think we've done it for a very long time. [...] But it is it is a source of risk premium. And I think, I think we, we focus on it, I think we to kind of come back to this, we hit single. Right. And I think what makes up performance is really the work of 300 people on the day, never seen. But we hit a lot of single. Well. And when you put all this single together, the result is pretty good. The great man coming down from the mountain and thinking that all this great macro trend are going to happen, that doesn't quite work. It's it's really about being incredibly disciplined and essentially making a bit of money every single day was various different hello to ever. [...] I do think repeatability is, is, is is really, really important. You want to make the process as industrial as possible and sort of said, okay, those are all the level I have. And on average this is going to be pretty good.