The opportunities from uncertainty

I used to media train the folks at Pimco and was always impressed by their research and strong point of view.

Pimco is one of the largest investment management firms in the world with $2 trillion in assets. To put that in context, Samoa’s GDP is $0.8 Billion.

The company’s Secular Outlook report has succinctly captured the complexity of the past four years, pointing to opportunities without overlooking the magnitude of global disruption. It’s a good piece of work.

The Executive Summary

• Global bonds – investor loans to government or corporates – look attractive for investors.
• The recent OMFG inflation shock and WTF interest rate hikes created a “generational reset higher in bond yields which now embed a significant inflation-adjusted cushion. This a healthy long-term outlook for fixed income returns as inflation recedes.”
• That means the traditional investor portfolio balance of 60% stock, 40% bonds needs a rethink

The good news

• Inflation has come down faster than expected
• Macroeconomic and inflation risks look more balanced than a year ago
• Central banks are set to cut rates

Caution

• While AI could disrupt labour markets and drive productivity, the reality is true economic impact may not hit for years. Pimco notes (without saying ‘bubble’)  that “massive capital investment has accompanied rapid stock market gains in ways reminiscent of past tech booms.”
• There is likely to be more worldwide trade disruption as tension rises between the US and China
• There’s obviously a lot more in the report, but Pimco’s adjusted world view is recognition that while disruption has changed the game – there may be some certainty beginning to emerge.

Then again, I am an optimist.