Pimco is bolstering cash positions and protecting itself from corporate-debt risks just in case Donald Trump's new administration doesn't hit the ground running and the recent stock-market rally stalls.
The president-elect’s pledges of tax cuts and spending increases are driving expectations for faster growth and inflation in the world’s biggest economy. Trump has also blamed China and Mexico for American job losses and threatened tariffs on imports.
"The asset management group, one of the biggest bond investors in the world, has been girding itself since late last year for a fall in risky assets such as stocks and high yield debt, after the big gains following optimism over Donald Trump’s election," the Financial Times reported.
“Given the uncertainty, it’s better to be careful,” Dan Ivascyn, group chief investment officer at Pimco. told the FT.
"But some asset managers, such as Pimco, argue that markets remain vulnerable to a wide array of dangers, which could reignite demand for safer debt," the FT reported.
“The market is very much embracing the positives, but we fully expect there will be a lot more volatility than the market has priced in,” Scott Mather, manager of the Total Return Fund, told the FT. “For me the risk of a recession is at least average, if not more.”
To be sure, Bloomberg View columnist and Newsmax Finance Insider Mohamed El-Erian agrees with his former Pimco colleagues.
“It makes total sense to take some money off the table,” said El-Erian, the chief economic adviser at Allianz SE. “We’ve priced in no policy mistakes. We’ve priced in no market accidents, and we’ve ignored all sorts of political issues,” he said on Bloomberg TV. In October, El-Erian said that he held about 30 percent of his own money in cash.
(Newsmax wire services contributed to this report).
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