Volatility in asset prices can occur when strongly held consensus views are shattered, leading investors to readjust their risk allocations based on new news about defaults, inflation, and earnings.
Marketfall episodes can be protracted when uncertainties, such as the US debt ceiling, don't fit into Excel spreadsheets, potentially causing disruptions in the market.
The podcast discusses the intersection of politics and markets, highlighting the chaos that can arise and the importance of understanding how politics impact the alternative investment industry for effective risk management at PIMCO.
Deep dives
Volatility arises when a strongly held consensus view is shattered
Volatility and asset prices can materialize when a strongly held consensus view is shattered. New news about defaults, inflation, and earnings can force investors to shed exposures and rebalance their risk allocations.
Marketfall episodes can be protracted when uncertainties do not fit into models
Marketfall episodes can be especially protracted when the uncertainties surrounding them are difficult to model or quantify. The recent example is the US debt ceiling, which introduces uncertainties that don't neatly fit into Excel spreadsheets, potentially causing market disruptions.
Importance of understanding the intersection of politics and markets
The podcast delves into the intersection of politics and markets, highlighting the potential chaos that can arise in this realm. The head of public policy at PIMCO, Libby Cantrell, shares her insights on how politics impact the alternative investment industry and provides valuable input for risk management at PIMCO.
The significance of the US debt ceiling and potential last-minute agreements
A significant portion of the podcast covers the US debt ceiling and its potential effects. While the guest, Libby Cantrell, suggests that a default is unlikely, she anticipates a last-minute agreement to avoid such an outcome. This could lead to some market disruption as the deadline approaches.
Rising tensions with China and its potential impact on markets
The podcast explores the intensifying geo-strategic rivalry between the US and China, with emphasis on the growing bipartisan view of being tough on China. Libby Cantrell highlights the potential impact of this rivalry on markets, including the rise of decoupling and the importance of considering the broader context of US-China relations.
What has experience taught us about consequential market risk events? First, volatility in asset prices can materialize when a strongly held consensus view is shattered. Presented with “new news” – about defaults, about inflation, about earnings – investors may be forced to shed exposures, right-sizing their risk allocations to this new state of the world. Market vol episodes can be especially protracted when the attendant uncertainties do not fit neatly into an Excel spreadsheet.
Here, the US debt ceiling checks the boxes. And against the backdrop of an emerging standoff, it was a pleasure to welcome Libby Cantrill, the Head of Public Policy at PIMCO, to the Alpha Exchange. Our discussion explores the sometimes chaotic intersection of politics and markets and the way in which her work is utilized by risk takers at PIMCO. We spend the bulk of our conversation on the debt ceiling and here Libby lays out how the 2023 version has important differences from the 2011 version, specifically in the degree of leverage that the Republicans had then versus now. While of the view that a default is avoided, she sees it as a last minute agreement almost by necessity and with that some market disruption may occur.
We finish with a discussion on where 150 million Americans are spending their time, TikTok. Libby helps frame this out in the broader context of the intensifying geostrategic rivalry between the US and China. Noting that “tough on China” has become a bipartisan view, and with the recent spy balloon incident in mind, she sees more catalysts for decoupling on the way, further tension and the potential spillover into the market.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Libby Cantrill.
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