Pimco CEO Manny Roman on Japanese Bonds and the Sell America Trade

Markets move fast. Get the insights you need in 10 minutes with Barclays Brief, a podcast from Barclays Investment Bank. Each week our experts analyse market themes, helping you anticipate what's next. Listen to Barclays Brief wherever you get your podcasts. Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway. And I'm Joe, why isn't all? Joe, it's back. What's back? It's back. What's back? There are back. No, the bond between little aunties are well. The cell America trees. Oh, the cell America trees. Various flavors of what the back could have been, but all seemed to be converging at once. 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. Yeah. In the market. What was interesting about that sell-off is it was a trifecta of US assets. So you had the S&P 500 down, bond yields up and the dollar index down as well. And so obviously people are talking about, is this the start or the restart of the cell America trade? All of this is coming in the context of Trump's threats against Greenland, lots of geopolitical risk. And I should also just mention we are recording this literally at the end of this discussion. Trump is due to speak at Davos. I don't know why we do this to ourselves. Yeah, right. So all of this could change on a dime within like 60 minutes, but there's a lot going on. Yeah, and it probably won't change on a dime. And the reason is because well, yes, it is true that probably the 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. Abonomics 2.0 perhaps with the new Prime Minister and so forth. And so then part of the story yesterday, and you mentioned the trifecta sell-off, but part of the story yesterday, fairly sharp, increased lately in long-end rates in the US and Japan. The 40-year bond in JGB, which never existed up until like 2007. Apparently, it had 4% for the first time in history. We were looking at sub 4% 10-year rates as recently as October in the US. Actually, maybe even was recently as December. Now we're closer to 4.3 again. So like those people keep thinking like mortgages are going to like come down, etc. It's not looking like it. 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. Well, this is the debate. Yes. So Scott Besend in Davos, like a lot of people at the moment, was saying that he thinks the US 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. 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 all of that. 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 sell-off? Well, I think the honest answer is a mix of both. But 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 yield went up five or six bips yesterday on the 10 year. And the stock market is down 2%. I mean, it's not exactly an earthquake. And so, I do think that the market is very rational and essentially discount a lot of the noise 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 flat as a pancake. The move away from the dollar, yes, as a secular trend, the fact that you want to diversify away from the dollar makes sense. And you want to have other currency than the dollar, but the dollar remains the real reserve currency of the world. And so, I take all of this with a grain of salt and 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. I was thinking about this last night, looking at the S&P 500. You were thinking about how you're an animal looking at the screen. I was thinking about exactly. I wasn't in a moment of being an animal looking at the screen last night. It did occur to me. It's like, okay, S&P had fallen 2% on Tuesday, the 20th. However, in the context of an incredible year and the incredible 15 years. And the market. Well, it's not that much. Nonetheless, I guess it's the confluence of headlines coming together. It's like, oh, I'm going to like pay attention to this 2% down day. But I certainly take your point. These are modest moves in the grand scheme of things. 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 US, elsewhere. Like, what is the bigger story that we're like taking from there? Well, I think Japan is quite a peculiar situation. Let me start with the US, because it's the easiest thing. Look, rates have been essentially in a range for the past year and a half. And I think the treasury and the Fed would be very focused on the long end of the curve. And I think that fixed income offers a real good entry point in terms of investment. I mean, we talked about the S&P. S&P is very expensive. Investors are going to look at long term fixed income and say, I can make 6 or 7%. Holding a basket of fixed income, that looks really attractive. And so, I think every time you'll back up, you see money coming back. I talk about PIMCO. The flows have been incredibly good over the past 12 months. You know, people have come and bought US assets. And the trend is very clear. Nothing is changing. And we have people basically saying I can get 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. Japan is a very specific situation. I just came back from Japan last week. I mean, you feel bullish. I think everyone you meet is bullish equity. You know, I started my career in 1997. It's the first time that I see the NK above when I started. I mean, it's unbelievable. But yes, you know, there is for the first time inflation. And the long end of the curve 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 I think one of the things we try to do is look at the liquid instruments. So the 40-year GGB may not be the most liquid instrument. The 10-year GGB is a real. Sure, I agree. 40-year are the probably hardly trading it. And you know, the same goes in the US, right? And we want to look at the 10-year. The 30 is a bit of a different story. You mentioned US Treasuries trading in a band. And this is something I wanted to talk about because, you know, before yesterday, the non-movement in the bond market was really remarkable. So the move index is at its lowest since, I think, like 2021. That's the bond volatility index. And if you look at the 30-day trading range for 10-year Treasuries, that was at the tightest since the 1970s, which is pretty remarkable. What has that lack of volatility been like for a big bond shop like PINCO? It's a funny thing. We do like volatility because with volatility comes Alpha. Right. And so we do like the opportunity to provide liquidity and add interesting position to offer for you, for sure. But we need to scale up and scale down the risk depending on what's happening in the market and depending on the opportunity. And so we just came back from a very strong period of performance. This is going to be plenty to do. And it may be on name specific, it may be on macro trend. I do think that a competitive edge is not to be able to predict day-to-day what's going to happen to the market. All competitive edge is to have structural position to think about where value is, to optimize or portfolio, to think about the downside risk. That's what we know how to do. And it's an interesting market. Some things are cheap, I would say, rates are cheap. And some things are rather tight. Investment grade up are probably rather tight. But in structural product and market shares, there's a lot to do. So you have this environment where you can build portfolio and feel reasonably comfortable that you will perform over the next 12 to 24 months. Let's talk about going back to Japan since you just got back from Japan. And actually, I don't think we've done an episode on Japan since the election of the new prime minister. But tell us a little bit more. I mean, why now? What's going on? You see, everyone feels bullish, etc. Tell us a little more color of what you learned in your trip to Japan. Well, I mean, look, we have a big Japanese office and there are people in Pimco who knows a lot about this. I mean, look, it's for 20 years, Japan has tried to restart inflation. And for 19 years, it really hasn't worked. And then all of a sudden, they managed to get somewhere in a labor market, which is fairly tight, where immigration is a problem. And where when you go there, I think there's a clear desire to monitor immigration and the new prime minister has been very vocal about making sure that there's a limit in terms of labor force moving into Japan. Now, over the medium term, that's a problem. But when you look at the inflationary pressure, it's pretty clear that there's more inflation in Japan that it has been for the longest possible time. Now, the second thing is, I think you see other factor in Japan that you haven't seen in a long time. I was surprised by the fact that you have much more activism in a stock market. People to try to take ownership in company, trying to turn them around, breaking down conglomerates. It's not the first time I hear that. But I think this time it's certainly more real than it has been. 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 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. Forget about whether they price right or wrong, but in terms of business model, they're quite attractive. Just on the bond sell off, how much of that is the return or expected return of inflation versus debt 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. Is this maybe the bond vigilantes finally turning their attention to Japan? So I was talking with Rich Clarita, who is a chief economist. Who's the part as well? And I said to him, I said, you know, we tend to look at 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 in the US with the baby boomer in Japan with 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 could have at some point in time higher inheritance taxes, this 80 trillion dollars of wealth in the baby boomers. Eventually, that will go to the next generation, but it will also go to the state. And it's a question of how much goes to the state versus the next generation, but there is the ability to tax more. It also comes down, I suppose, to the political capacity of the state to tax because on math, you say, look, there's tons of private household assets. We've far more wealth than we do have debt as a society. And therefore, it's just a matter of channeling in the right place, but you also need the politics to be built, which actually gets me to a question that you might have put it on the sort of like CEO of a big asset manager hat, you know, in California, there's talk about a wealth tax, etc. There's talk in Europe about wealth taxes. There's people talk about, I want to like set up my family office or whatever somewhere in the golf and avoid all this. What do you see on that front? Do you see money moving in a significant degree, high net worth or ultra high net worth clients really thinking about where their money is domiciled in the different way? 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. Tell us more about that. It turned out to be a disaster because the reality is people can move. They decided to vote with their feet and they didn't believe that the government would keep the taxes at historically to the 3% of wealth and they decided to go to Belgium or to Switzerland or 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 the Nevada and decide you want to live in Nevada. God forbid. But then you have to live in Nevada. But you've got to live in Nevada. But there are many other places and there's anecdotal evidence of people moving to Austin and domiciling themselves in Austin and so on and so forth. So I think one of the things about the US tax code is you have competition among states in terms of where people can reside and so on. So for now, you know, there's many great things about California. We based in Newport Beach. We happy to be in Newport Beach. We pay high taxes. It's all good. But do you see into California or even on it like right now, are you hearing about high net worth clients making these decisions right now or thinking about all second hand and all from the tech industry. And I read the same news than you do. I'll be honest with you. I never met Larry Page, but I understand he moved to Texas and you know, by the way, one of the things we've done really, really well is we set up a Austin office and it's been a great success. So we have 500 people in Austin. It's a big business for us. There's a great university there, which produced a lot of grad in STEM. That is aware of that. That's my alma mater. Here we go. Thank you for saying that. 90% of the graduate from UT stay in Austin. So you're one of the exception because that was one of the kids. I deserve it. I deserve it myself. But it's been a real good thing for us. Yeah. Today's markets move fast. Get the insights you need in 10 minutes with the Barclays Brief. A new podcast from Barclays Investment Bank. Through sharp dialogue and scenario-based analysis, our leading experts analyze key market themes each week. So whether you're managing a portfolio or leading a business, the Barclays Brief podcast can help you make smarter decisions today. Stay sharp. Stay briefed. Find Barclays Brief wherever you get your podcasts. Hey, there are lots of snars as we come into 2026. We are realizing that one thing we're constantly thinking about on the show is how companies actually get built. Not just like the headline version of that story, but the messy operational reality of it. Right. We love messy operational reality of things. The never ending question dive deeper. How companies make it big? What causes one company to succeed? Why others fail? Well, I have good news. That is exactly what the acquired podcast does. Ben Gilbert and David Rosenthal pick a company and then explore all the ins and outs of its trajectory. Lots of detail there. How it scaled the ups and downs and so much more. Yeah. And we actually, we had them on AdLots back in February last year. We talked to them about everything from TSMC, Nvidia, Mars, Hermes, scale, capital structure, the importance of incentives. All of the different, I guess, ingredients that go into some of the success of these names that we talk about every day. Also, their show actually turned 10 years old in 2025, just like us. So we're, I guess, the same age in podcast years. Big year. Anyway, if you like AdLots, believe we get into various market dynamics, how the economy actually works under the hood, you'll obviously appreciate and enjoy the acquired podcast. They do similar work, similar ideas, all focused on the context of individual company. So go check out the acquired podcast. You can find them wherever you get your podcasts. I want to go back to the sell America trade and dollar diversification because one of the things that I think contributed to the atmosphere yesterday was we saw a headline about a Danish pension fund selling its treasury holdings. I think they have a hundred million or something like that. Not mega. Right. So a drop in the bucket of the US treasury market. But the fact that a pension fund is saying we're going to get rid of all our exposure because things are just too unpredictable. Obviously feeds into concerns about again, that geopolitical risk premium. When you see a headline like that, what goes through your mind? It is an upset Danish pension plan. For reason that I think we can understand, but that in the large scale of thing represents absolutely nothing. And you know, one of the thing when you work for PIMCO that you see is country with high savings rate and low population, Canada, Australia, need the US to put capital to work because the local market is too small. So imagine, for example, that you are one of the super generation in Australia. The reality is you need the US to put money to work. You local market is too small. You're not going to put 50% of your assets in Asia. And Europe. I don't know. I mean, I'm European. There's many things that I love about Europe, but the investment opportunity may not be as exciting as it should be. We haven't seen growth over the past six years. It's a problem. So the other trend, which is happening exactly at the same time that we've been very involved with is the AI build up. And the fact that at the same time, you have the South America at the same time, you have an enormous amount of money coming into AI and data center and building up a whole new ecosystem. And that, I think, will provide exciting investment opportunity for plenty of people. So you have to wait the two and the micro versus the politics. And, you know, if I was a guessing man, I think the micro wins. Nonetheless, I'm going to still try to go to you into the politics-ish question because we're very flattered that you came to visit us here at our offices in New York City. But it's hard not to note that you're not in Davos right now. I was there in 2015. I got a flu. So I would never go again. What's your excuse? Oh, my excuses. I think, I mean, look, I always say my partner, Dineviston, who was on your pod a month ago. And I look, our life belongs to a client. We have to manage the firm. We're here to sort of all in Davos. This is what they say. Oh, I go to Davos because this is where my clients are networking. Yeah, I'm not worried. Why is Jamie Dimon's there? He would say my clients are here with them. See why it was here? We're simple people. We mind the shop. We mind the shop. And look, people make different decisions and so on and so forth. And given what's happening in the market, given everything else, I think we're glad we're glad we're in the office. I love making the office. That big said Tracy wrote about this yesterday in our newsletter. The conversations that are happening in Davos. They're pretty serious. I mean, Mark Carney talking about this sort of. It's time for us to not be a rupture. It's time to not we can't be nostalgic about how the world was five or 10 or 30 years ago, etc. But it's hard. Markins don't easily price in geopolitical turning points or when they do it tends to be in an L shape, etc. Surely you're thinking about these things all the time. And look, Mark Carney is a friend. He used to be on a global advisory board. I think he's a fantastic human being and a great prime minister for Canada. But I will read the transcript of his future at the same time you will. And I understand the predicament that the question is how much can Indian bonds do I want to own and how much can Indian dollar do I want to own and you know information is very, very efficient. And the reality is is Mark says to everyone at the same time what he thinks and that's the way to work. How do you actually factor in geopolitical risk into the way you manage your portfolios? Because this seems to be something that investors understandably struggle with, especially since a lot of the outcomes are so binary, right? It's like, well, either the US takes over Canada or the US doesn't take over Canada. I think we try to be incredibly humble and say, why do we have an edge? And the reality is if the three of us sees the exact same thing at the same time, we don't have an edge. I think we really, really try to understand politics. We have one of my partner, the bicentral, is solely focused on US politics. She does a great job. We care, but we care about micro issues that may not make it to a pod. We care about mortgage reform, we care about what actually what can the president do in terms of Greenland, the reality is he needs to be third of the Senate and Congress approval. That seems like a lot. So we care about smaller things and often we said, look, we don't know anything that the market doesn't know. And so we shouldn't build position based on politics because the reality is we all see the same thing at the same time. In some markets, you know, I come back to currency. I mean, you look at the big currency. It's the most efficient market in the world. I mean, if you look statistically, they're incredibly hard to predict. I mean, you look at time series of, you know, dollar yen, a dollar starting, a dollar euro and so on. I mean, it is as close to white noise as anything can be. So you build a portfolio. Yes, there is a theme that the dollar may get weaker in which case you want to have other currency. You know, we lack the Australian dollars. We like the British pound. Why? Because the economy is slowing down and you have high rates. And so this plenty of room to cut. And you say to yourself that something you want to own. But you know, how much of your portfolio it is 20, 25% something like this cannot be a hundred. What do you make of the relentless bid in gold? Honestly, these things where I just give up and I say, and I say, I don't understand that's one of them. I really? Yes, totally. I believe that assets are being moved by two factor, valuation and momentum. So the momentum in gold is incredibly strong. I see it goes up every single day. Someone is buying it. Maybe it's CTA. Maybe it's individual. Maybe it's central bank. I don't know what I don't understand. I stay on the sideline. But the same talker. I don't really understand crypto. And that's okay. I think when you in asset management, the one thing you need to know is sort of stick to you knitting and do what you know how to do. And when you don't understand, sort of said, okay, that's not my my gig. I shouldn't be doing this. All the people understand it better than I do. 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. So the efforts on the political side to bring rates down versus bond yields longer term bond yields that seem to, you know, be pretty stuck at high levels. That's right. Look, it's a complicated tension. And 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. And for that part of it you control and part of it you don't and it's inflation expectation. It's the shape of the curve and it's discipline. And whether they get there or not, I don't know is the short answer. The 30 year mortgages and the whole mortgage ecosystem looks cheap and is planted to buy and it looks attractive. Yes, we do think that the purchase will help in terms of valuation. But I don't know what I don't know. You have midterm coming in November. You know, it's too early to have any intelligent thing to say. But a lot of things can happen. Speaking of mortgages, one of the things that we've heard over the past several weeks, the administration wants to make it harder for big asset managers to buy single family homes to actually do anything like that. It might have to go through Congress, but we did get an order last night or a statement last night from the White House to about Fannie and Freddie putting bigger constraints on large institutional investors. Like what do you make of some of these, I don't know, populist inspired impulses to sort of change the distribution of who could buy what assets. Not much. Well, I mean, look, we don't do that, but there is some people do build rent. And they said build to rents exactly. So I think that's a pretty big chunk of what this whole phenomenon is. And look, it's hard work. The US, if you look at it from a macro standpoint, has a shortage of house, right? So we need more homes. And the reality is, when you look over the 30 year period, the only places where cost haven't gone down is building. And the reality is we need more cheap houses, especially in affordable housing. And that's a policy that I think would be quite good, but it's not because institutions shouldn't own single house. You need more houses. You need people to be able to afford proper houses. And that's true, I think, in a lot of state. And there are states like Texas, for example, where you have plenty of space and you look at the cost of housing and it's going down and you have states like California, where it's really complicated. You need the robots to build houses, right? 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? How are you thinking about the increased, I guess, exposure or presence of AI in something like IG? 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 to build data center. And some of these deals are going to be incredibly attractive and some won't be. And so, I think what's really interesting is the big data center user may actually be double or better rated company. And so, Oracle, Meta, or any of these companies actually have a capital structure where they may need a lot of money, but the money is backed by market cap if you use a merchant model, which is above a trillion dollars. And so, they put it safe in investment. That's pretty unique. And so, size is a competitive edge that plays well to our strength. We're position yourself to have plenty of capacity to do it if and when it comes. And then some people like Microsoft and Google probably can do it with the cash and build up the cash and don't need to issue that to be able to do it. So, different people will go with different strategy. My understanding is you made a pretty chunky return already on that data center deal. And I've heard in the market that since you did that, everyone wants to come in and finance data centers. Are you seeing a lot of copycats or competition in the space to get on these new deals? Well, not everyone can take 25 billion dollar of a deal. True. And so, I always say, you know, one of the things that we constantly think about is what's a competitive edge. And we big, and we do one thing. We do fixed income in all shapes and form. And so, we always say we're going to make money where those trends are. And that's clearly one of the strength. It's good to be PIMCO when it comes to new issuance for sure. It is good to be PIMCO when it comes to new issue where we were part of the structuring working with in this case Morgan Stanley. And we understood the credit quite well and it was something which fit into a portfolio. It may very well be that the next one doesn't fit into what we do in which case will pass. It turns to scale or such a common theme in our discussions last night size per se as a competitive advantage which is not always the case because sometimes you like to or small and nimble but seems like in many of these things we're talking about these days size is huge. You know, just like from the perspective of CEO and you know this conversation sort of blends the line of like what I would think of as a CEO discussion and CIO discussion right when we're talking about rates. A discussion about where you have offices in Austin is kind of a CEO discussion but from the perspective of CEO like where else are you putting your chips besides you mentioned Texas and there's okay there's some migration. I think Asia I think I think all the high gross market from the CEO standpoint is quite interesting. So we have a great Asian business. And when you look at the population the savings rate and what it will be ten years from now I think it is incredibly important that we do extremely well in Asia. And so we have offices in Japan, Hong Kong, Singapore, Taiwan, Australia and they're doing great. The buildup of wealth is really really important and that's before we start talking about China. And so if you look at the super secular horizon, Asia will become significantly bigger than Europe in terms of the amount of money for asset manager and what the opportunity set is. And I think that's pretty clear to me. Hey there, odd lot listeners as we come into 2026 we are realizing that one thing we're constantly thinking about on the show is how companies actually get built not just like the headline version of that story but the messy operational reality of it. Right. The never ending question dive deeper how companies make it big, what causes one company to succeed, why others fail. I have good news. Ben Gilbert and David Rosenthal pick a company and then explore all the ins and outs of its trajectory, lots of detail there, how it scaled the ups and downs and so much more. Yeah. And we actually we had them on odd lots back in February last year. We talked to them about everything from TSMC and video, Mars, Hermes, scale, capital structure, the importance of incentives, all of the different, I guess, ingredients that go into some of the success of these names that we talk about every day. Also, their show actually turned 10 years old in 2025 just like us. So we're I guess the same age in podcast years. Anyway, if you like odd logs, believe we get into various market dynamics, how the economy actually works under the hood, you'll obviously appreciate and enjoy the acquired podcast to do similar works, similar ideas, all focused on the context of individual company. Do you anticipate mainly in China ever being a real big opportunity? I hope so. I hope I hope the market, the market of a level playing field at some point in time and something that all of us feel comfortable investing in. What would make you feel comfortable? Is it just the easing of capital controls or something else? The easing of capital control, the rules in terms of setting up proper trading operation, all of these things. And I always say you can break the world differently. So you look at our business. I can break it and say you have high gross region, Middle East, Australia, Canada, Asia, where they all have the same characteristics. They have high gross and high savings rate. And do's are usually pretty good for a set manager. And then you have mature market like US and the UK, where you'd be happy to grow at 5%. Because there's nothing really new happening and the market is a market. You may take market share and you may lose market share, but the secular growth in the markets is sort of well known. And what about in the Gulf? I think the Gulf is very exciting. I mean, I always make this joke. If you close your eyes and you take a direct plane from LA to Abu Dhabi, so as you know, in Newport Beach. Honestly, you think you want to run the world and kind of come back. Abu Dhabi is the LA of the world. It's very similar to Newport Beach actually. People are super friendly. They've done a really, really good job. Super friendly, great weather and the most interesting culture and intellectual hubs that you can think of when I associate Abu Dhabi at Newport Beach. I mean, Abu Dhabi is once again over the super secular trend. I think the Middle East has come a long way. And I think you also had, you have a new generation of investment professional locally trained and locally raised, which is pretty good. So once again, I think that's quite good. You know, and then there's what we don't know. You know, everything happening with Iran and whether Iran is something will happen or not. And, you know, I think the answer is no one knows. I lived in Abu Dhabi for two years. And I always likened it to Texas in that it's hot all the time. And you spend a lot of time. A lot of your time at the pool and at the shopping mall. And that's pretty much it. That could be that could be California. Exactly. Exactly. 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? Oh, 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. When we remember every time we buy a bond, it goes into many different account. And every single account has different parameters, different restriction. It's all goes to a custodian. It gets split. It has best X. All of these things is a complicated factory. Anything which makes the factory simpler, more efficient and safer is a really, really good thing. AI will help to do this. We spend a lot of time discussing and the and things like this were honestly. It's probably fair to say that we have better things to do. And so if AI gets us to a more efficient less costly solution, that's good. I always say if AI allows us to reallocate resource more in R&D than in repetitive, minial function that we don't need to do, that's good. I think compliance will also benefit quite a bit from AI and the ability to do deep learning and sort of figure out whether they train, whether we miss something, whether look at every possible situation. I think that's also quite good. And then this the offensive part where you sort of said, okay, can I use large language model to try to extract from data inside an opportunity that I may have missed. And I think on this, some of it will say, okay, that doesn't work. Yes, you know, we've analyzed every single sentence from the Fed and every single transcript. And you know, we found nothing that we didn't know. And then sometimes we may find things that are new and allows us to have an additional alpha. And I do think that large language model have a competitive edge when you have a lot of data, which don't necessarily match perfectly. 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. And then the more data you have, the more of an edge, presumably you get. But I think you, I'm back into this journey being humble and sort of hope that, you know, you have a few wins. Just on the, I suppose, defensive AI, because we just recorded an episode talking about some of the coding models. And there's a huge theme in the stock market, specifically lots of sort of mid-level enterprise software companies getting very hurt because their clients are like, well, maybe we could buy this or maybe the AI. We don't need to like put in a sales ticket into a system because you can have an AI that just knows that tell the sales person to make a call, et cetera. On this sort of basic blocking and tackling at an asset manager, you must have tons of third party enterprise software contracts and seat negotiations, et cetera. At that level, do you see AI tilting the playing field and said, you know what? Maybe we could build this feature trivially and we don't need to pay this per se license or anything like that. Are you seeing this in action? I think you're totally right. I think that all of us have apps that we use and software that we use that we don't love and that cost too much money. And we'll try to replace them and some of them you'll be able to replace quickly and some of them won't. But that's an effort. There's like that's a real thing. In-house development. Is that something you're doing already? Sure. Interesting. And I think to link that back to the market, there's been quite a high level of activity in private equity in software because the cash flow was deemed to be predictable with high leverage. It will be interesting to see what happened to the returns of this software company for the years to come. There'll be winners and losers. But the top line of some of the software company will be interesting. And I know that Dan is worried about the software industry in terms of risk and every single credit we own. We look at it with an air length and say if AI is as game changing as we think it is, what would it do to this business model? And I think that's a perfectly reasonable question in terms of what what it may do. You mentioned the Fed a little earlier and I realized we've gone this entire conversation without actually talking that much about the US central bank, but let's rectify that now. So one of the remarkable things about the bond market recently is even though there have been concerns and headlines around central bank credibility and possibly pal, you know, coming under criminal indictment and all of that. The bond market hasn't really reacted that much. Again, it's been trading in a very narrow range. We've also seen tips and other inflation related bonds basically not incorporating any of what you would think would be these political risks. Do you worry at all about credibility of the central bank as a big bond buyer? I think we believe in Fed independence. And as we often say, I haven't met many politicians who want higher rate. And so there's two level in economic policy. There's monetary and fiscal. You want the Fed to be in charge of monetary policy. And I think the good news is whoever gets the job as head of the Fed enters into the history book. I think the weight of the function is such that people tend to make very rational decision. It doesn't mean that they always the correct one. But you're not going to see a situation where with the reading of inflation did make totally suboptimal decision for political reason. I think it's very hard. You think we're far from that. I think it's very hard to do. And you have a voting process. I think when you achieve economists, tell us you're crazy. It's just really difficult to kind of go against this. Now, maybe once you can kind of look through the data and say, I do think the data are going to become better his wire. But it's a really, really dangerous game. Also, once you lose credibility, you really lose credibility. And I often say, I think everyone has looked at the list us situation in the UK. When you do something borderline crazy. In literally five days, you can destroy your credibility on the bond market. And you have to move at the speed of light. And with the Bank of England to be able to correct when rates go up literally 100 bips. And so I do think the market punishes you and punishes you really hard. If you try to do something which she doesn't want. Why is it that Liz trusts is like, OK, this was like a dangerous thing. It was like reckless, et cetera. Whereas new Prime Minister of Japan comes in talks about reflationary policies. And you describe it's like everyone's excited about Japan right now. What is the difference between the inflationary impulse that Liz trust 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. What I think I think what happened is she gave this whole tax package at the same time. So there was like this liberalization and the same time a tax package where clearly someone hadn't kind of figure out the very basic math in terms of what it did to government spending. 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 the back of the curve just one crazy. I mean, at some point in time this called policy really really matters. And you know, look, I you know, one of the thing about being European is you look at fiscal policy quite a bit because that's that's been one of the core level of economic policy and and somehow I think the left hand and 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 but you get Treasury and the market reacted incredibly strongly to that. 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? Well, I think we look at volatility all the time and I think when we find opportunity to sell volatility, we do. And it's a source of alpha. And I think we've done it for a very long time. And you know, sometimes we sometimes we think it's attractive and sometimes we think it's less attractive. And we, you know, I'm not going to talk about opposition, but it is, it is a source of risk, Crimea. And I think we focus on it. I think we to kind of come back to this, we hit single, right? And I think what makes our performance is really the work of 300 people on the Dinevisan. 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, I'm going to happen that doesn't quite work. It's really about being incredibly disciplined and essentially making a bit of money every single day with various different level. And maybe I demystify what we do, but I think it's actually a lot of work. And that says why it works. And it's repeatable. So I always say to a fun manager, why do you think you can make money? Question number one, question number two, why is it repeatable? Why do you think you can do it again? And the great idea and the great man coming from the mountain, I was the table of the lows. I'm not entirely sure it's that repeatable. Because sometimes you get lost in the burning bush and you know, other things and so on. It's a very evocative image. You know, I'm an evocative guy. And I do think repeatability is really, really important. You want to make the process as industrial as possible and sort of say, okay, those are older level. And on average, this is going to be pretty good. All right, Manny Roman, thank you so much for coming on. It was fantastic. Thank you so much. Joe, that was a really enjoyable conversation. And I like straddling the CEO and CEO worlds. It was interesting to get that perspective. You know, one thing I saw right before we recorded this episode, people were talking about the Bank of America Global Fund Manager survey. Oh, is that out today? I don't think it's out, but in the last one, relatively recently, I think geopolitical conflict, top the list, which, you know, kind of expected. But then the second concern, the second biggest concern was a disorderly rise in bond yields. Interesting. And 19% of respondents had that down as they're like top tail risk in January. That's pretty interesting to me. And that's the atmosphere feels a little bit different because people are so primed for this particular event. Totally. You know, the thing that I keep thinking about is we just have this combination right now of like, all right, so like we didn't ask Manny this directly, but it's like this fundamental question. Why does the neutral rate appear to be higher than it used to be right? And there's two big things going on, which is there's a lot of public spending because of remilitarization and that's related to geopolitics. This desire for national self-sufficiency across a range of technological and commodities and so forth. So there's like tons of spending. And we're throwing sand in the gears of trade. So that spending is less efficient than an otherwise would have been right. So for a dollar of spending, maybe only 75% is actually contribute to the economy and 25% is waste, et cetera. So these are two things going on at once. And so like I certainly take Manny's point. And I think it's holy right. There's a you can't one day you get a blip. And it's like it's not the end of the world. And you have to like train yourself to like not overthink a single day. On the other hand, rates around the world remain despite rate cuts, et cetera, and despite arguably slow down significantly above where they were. There's a direction of travel that strikes me is very intuitive given the simultaneous phenomenon of like less efficient trading systems and more spending. I see Trump is giving his address at Davos. So shall we leave it there? The another man from the man. Could I say I loved Manny's like man of the mountain. I feel it's fine. We're always about men of the mountain coming down with their wisdom. Yeah, I love that. But yes, we should go listen to a man literally in the mountain. Lots of mountain men in Davos. And here what he has to say. All right. Anyway, we can leave it there. This has been another episode of the all thoughts podcast. I'm Tracy Alley. You can follow me at Tracy Alley. And I'm Joe Wyzenthal. You can follow me at the stalwart. Follow our producers, Carmen Rodriguez at Carmen Armand. Dash open it at Dashbot and kill Brooks and kill Brooks. From our AdLots content, go to Bloomberg dot com slash AdLots. We're a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our discord discord GG slash AdLots. And if you enjoy AdLots, if you like it when we talk to the CEO of the World's Biggest Bond Fund, then please leave us a positive review on your favorite word. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely add free. All you need to do is find the Bloomberg channel on Apple podcasts and follow the instructions there. Thanks for listening. [Music]