Olivia Albrecht: Hi. I’m Olivia Albrecht, and I’m joined by my colleagues, Joachim Fels and Scott Mather, to discuss PIMCO’s cyclical outlook. Let’s get started. What keeps you up at night? I know the answer for me is my newborn son, but I’m guessing others want to get your perspectives here. So, Scott, what keeps you up at night?
Scott Mather: It’s a shock – geopolitical shock being the most likely variety that we worry about – because unlike other environments, we get a sense that there’s not the room to use fiscal policy or use monetary policy very effectively to counteract that weighing on economic growth.
So, we have less ability to respond to a crisis and a lot more uncertainty about how people would respond – how institutions, how governments would respond. So, that’s probably the number-one worry. And, fingers crossed, it’s been relatively quiet for several years. But history’s shown you really shouldn’t count on that to last more than several years.
Olivia Albrecht: Joachim?
Joachim Fels: What keeps me up at night? Well, I would say China. That’s what worries me most. There’s a consensus view out there that, as always, the Chinese are putting in stimulus in response to the slowdown.
Things will stabilize or even pick up. That seems to be the market consensus. That may happen, but I worry what if not. So, I think the stimulus they’re putting in at the moment – fiscal and monetary – is relatively timid. It’s relatively small compared to the past. So, there is a chance or a risk that China’s slowdown continues and actually accelerates on the downside.
And what then? Well, they might then have to allow the currency to depreciate even more than it has over the past year. And that could then bring back disinflationary or even deflationary forces for the rest of the world. And it might bring back the trade war.
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